Sample Question: If a competitive firm hires another full-time worker, total output increases from 100 units to 110 units per week. Suppose the market price of output is $25 per unit. What is the maximum weekly wage at which the firm would hire that additional worker? Step 1: Figure out how much additional revenue this worker brings in. Total output increases 10 units (110-100) this is called the Marginal Product of the additional worker. Each unit of output is sold for $25. This is the Marginal Revenue. Marginal Revenue Product (MRP) is the contribution of the additional worker to the firm's revenue stream and is calculated by multiplying the Marginal Product by the Marginal Revenue. In this case the additional worker increases output by 10 units of which we can sell each for $25. Therefore MRP = $250 Step 2: What is the max we would pay for the worker. Well if they are bringing in $250 the MAXIMUM wage we would be willing to offer is $250. Marginal Resource Cost (MRC) = Marginal Revenue Product (MRP) Q1: (Firm's Demand for a Resource) Use the following data to answer the questions that follow. Assume a perfectly competitive product market. Units of Labor Units of Output 0 13 18 22 25 a. Calculate the marginal revenue product for each additional unit of labor if output sells for $3 per unit. b. Draw the demand curve (this is for your own use) for labor based on the above data and the $3 per unit product price. C. If the wage rate is $15 per hour, how much labor will be hired? d. Using your answer to part (c), compare the firm's total revenue to the total amount paid for labor. Who gets the difference? e. What would happen to your answers to parts (b) and (c) if the price of output increased to $5 per unit, other things constant? Q2: On-the-job experience typically enhances a person's productivity in that particular job. If the person's salary increases to reflect increased experience but the additional experience has no relevance for other jobs, does this higher salary reflect an increase in opportunity cost or in economic rent