AP®︎ Microeconomics: Topic 5.3 Flashcards

Master key terms and definitions for Topic 5.3 of AP Microeconomics – Profit-Maximizing Behavior in Perfectly Competitive Factor Markets to help you prep for quizzes and the AP exam.

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Term

Perfectly Competitive Labor Market Characteristics

Definition

Many firms hire identical workers, each firm is a wage taker, and labor is hired at the market wage.

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Perfectly Competitive Labor Market Characteristics
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Many firms hire identical workers, each firm is a wage taker, and labor is hired at the market wage.

PRD-4.CPRD-4.C.1
Market Labor Demand and Supply
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Labor demand slopes downward from diminishing marginal returns, while labor supply slopes upward as higher wages attract more work.

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Wage Taker
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A firm that must accept the market wage because its hiring is too small to affect it.

PRD-4.CPRD-4.C.1
Marginal Resource Cost
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The additional cost of hiring one more unit of a resource; in a competitive labor market, it equals the wage.

PRD-4.CPRD-4.C.1
Individual Firm Labor Market Graph
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A downward-sloping marginal revenue product curve intersects a horizontal marginal resource cost curve at the profit-maximizing quantity of labor.

PRD-4.CPRD-4.C.2
Side-by-Side Labor Market and Firm Graphs
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Changes in market labor supply or demand change the equilibrium wage, which shifts each firm's horizontal marginal resource cost curve.

PRD-4.CPRD-4.C.1
Least-Cost Rule
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Use inputs so the marginal product per dollar spent is equal across all resources.

PRD-4.CPRD-4.C.3
Profit-Maximizing Combination of Resources
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Choose each input so its marginal revenue product equals its marginal resource cost.

PRD-4.CPRD-4.C.3
Marginal Revenue Product and Value of Marginal Product
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The extra revenue from one more worker; in competitive output markets, it equals MPL times price.

PRD-4.CPRD-4.C.4
Profit-Maximizing Hiring Rule
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Hire workers until marginal revenue product equals wage, using MPL times MR or price.

PRD-4.CPRD-4.C.4
Perfectly Elastic Labor Supply to the Firm
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An individual firm can hire any number of workers at the market wage.

PRD-4.CPRD-4.C.1