Factor/Resource/Input Markets

10%-18% of AP Test

Factor Market Review Link

Derived factor demand

Demand for all inputs is "derived" or originates in the product market

Marginal revenue product-FRQ #2 2010(B)

MRP is a function of the increase in marginal revenue received by the employer for each additional unit of productivity from either an investment in capital, land, and/or labor.

Labor market and firms’ hiring of labor

A firm will hire labor as long as the MRP > Wage (MFC). A profit-maximizing firm would employ a resource up until the MRP(VMP)=MRC (MFC).

MONOPSONY (imperfect competition)-

FRQ #3 2011B:


FRQ #2 2010B

Market distribution of income

Income is distributed to all factors of production from firms to households. Labor makes up approximately 70% of the distribution.