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AP® Microeconomics · Unit 5 · Topic 5.3

Profit-Maximising Behaviour in Perfectly Competitive Factor Markets: Topic Checklist (Microeconomics 5.3)

Specific “I can…” statements for hiring in perfectly competitive factor markets, each linked to the guide section and practice question that shows whether you can really do it.

Work through the list without notes. If you cannot do a statement, follow its link, then come back. Guide = study guide; Practice = practice questions.

Understanding

  • I can describe the features of a perfectly competitive labour market and explain why each firm is a wage taker. (Guide: “What makes a factor market perfectly competitive”; Practice Q2)
  • I can explain why a wage taker’s marginal resource cost equals the market wage at every quantity of labour. (Guide: “What makes a factor market perfectly competitive”; Practice Q2)
  • I can explain why a firm can have market power when it sells but still be a wage taker when it hires. (Guide: Worked example 2; Practice Q4)
  • I can explain why the firm’s downward-sloping MRP curve is its labour demand curve. (Guide: “The hiring rule”)

Calculation and graphing

  • I can calculate MP and MRP from a total product table, with units. (Guide: Worked example 1; Practice Q1, Q5)
  • I can find the profit-maximising number of workers where MRP = MRC = wage, and show what happens when the wage changes. (Guide: Worked example 1; Practice Q5)
  • I can calculate MRP for a firm with output market power and compare it with VMP = MP × P. (Guide: Worked example 2, Figure 2; Practice Q4)
  • I can draw side-by-side graphs of the labour market and one wage-taking firm, labelling the market wage, the firm’s horizontal S = MRC line, its MRP curve and its quantity of workers. (Guide: Figure 1; Practice Q6)
  • I can use MP per dollar to find the least-cost mix of labour and capital. (Guide: Worked example 3; Practice Q3, Q7)
  • I can find the profit-maximising quantities of two inputs where MRP_L = W and MRP_K = r. (Guide: Worked example 3; Practice Q7)

Reasoning

  • I can explain, with numbers, why hiring one worker past the MRP = W point lowers profit. (Guide: Worked example 1(c))
  • I can explain why least cost does not guarantee maximum profit. (Guide: Worked example 3(c); Practice Q7(d))
  • I can show how a change in market labour supply changes the market wage and one firm’s hiring. (Practice Q6)

All ticked? Move on to Topic 5.4, Monopsonistic Markets, or return to the course roadmap.

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