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MFC M

a). 2010 Free Response #1. 1 Company Machine. Machines. MFC M. MRP M. i ) No Change in MP curve of machines. The “efficiency” of machines is not related to the demand for outputs. ii) MRP m will decrease (shift left) . Demand for factors of productions

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MFC M

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  1. a) 2010 Free Response #1 1 Company Machine Machines MFCM MRPM • i) No Change in MP curve of machines. The “efficiency” of machines is not related to the demand for outputs. • ii) MRPmwill decrease (shift left) . Demand for factors of productions • (inputs) is derived from demand for outputs (product market) • End Result: Quantity of machines falls & price remains the same! (price taker for machines) c) MPL/w = MPM/r The ratio of MPinput/Priceoutput must be equal 28/14 = 60/r. So r = $30 That means 2 units of output for $1 cost

  2. MPL 90 units 100 units 90 units 80 units 60 units 20 units FREE RESPONSE #2 • 90 units => $450/$5 = 90 units for 3rd worker • With hiring of 3rd worker MP falls from 100 => 90 units • $300 for 5th worker. Highest wage = MRP for each worker • d) n/a • e) Indeterminate: • Falling output price => MRP shifts left => hire less workers • Rising MPL => MRP shifts right => hire more workers • f) The MRP curve would be to the left of the current MRP. Because market • Power firms have a MR below the demand curve • End Result: Less workers hired but at the same wage rate

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