Factor Market Lab
Hire while the next worker adds more than she costs.
About this tool
A firm hires another worker while that worker adds at least as much revenue as cost. The added revenue is the marginal revenue product (MRP = MP × MR, or MP × P for a competitive seller); the added cost is the marginal resource cost (the wage, for a firm in a competitive labor market; more than the wage, for a monopsonist). Hire where MRP = MRC.
How this lab works
Explore a bakery's hiring table beside its labor graph. Move the price of bread: MRP changes in every row and the MRP curve shifts, so the number hired changes at the same wage (labor demand is derived from product demand). Move the wage: the bakery hires up to the last worker whose MRP still covers it. Switch to Monopsony: the only employer in town must raise everyone's wage to hire one more, so its marginal factor cost (MFC) lies above the wage. It hires where MRP = MFC and pays the wage read from labor supply; the shaded rectangle is its wage bill. Add a minimum wage and watch employment rise.
Test yourself: marginal product and MRP from a table and how many to hire, derived demand on the graph with every link of the chain, monopsony hiring and the wage, and the least-cost rule (MP per dollar equal across inputs). A wrong answer names the slip: MRP from the wrong numbers, the wage read from MRP or MFC, one link missing.
The graphs show directions; the tables give the numbers.
Notes for this topic: Profit-Maximizing Behavior in Perfectly Competitive Factor Markets