Chapter 14

1. a. For a firm operating in a perfectly competitive output market, the value of the marginal product is the

marginal product of labor multiplied by the firm’s output price.

b.

In a perfectly competitive labor market where the going market wage is $12, a profit-maximizing firm

will hire workers up to the point where the market wage equals the marginal revenue product. In this

case, the market wage equals the marginal revenue product when the labor is 5 because at that level,

the marginal revenue product is $12.

2. a. For firms with some market power in their output market, like a monopoly, the value of additional

output sold is the firm’s marginal revenue, not the price. This is because they face a downward sloping

demand curve for output, which means that in order to sell additional output, the firm must lower its

price. The marginal revenue product equals the marginal product of labor multiplied by the marginal

revenue.
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