Scenario 14.4:
John's firm is a competitor in your product market and a monopsonist in the labor market. The current market price of the product that your firm produces is $2. The total product and marginal product of labor are given as:
TP = 100L - 0.125L 2 MP = 100 - 0.25L
where L is the amount of labor employed. The supply curve for labor and the marginal expenditure curve for labor are given as follows:
L = P L -5 ME L = 2L + 5
-Refer to Scenario 14.4. Suppose that the price of the product rises to $5. Which of the following curves shifts?
A) MP curve
B) MRP curve
C) Supply of labor curve
D) Marginal expenditure curve

Question

Quizplus · Accepted Answer

The MRP (Marginal Revenue Product) curve shifts when the price of the product changes because MRP is calculated as the marginal product (MP) of labor times the price of the product. Since the price of the product has risen from $2 to $5, the value of the marginal product increases, leading to a shift in the MRP curve. The MP curve, supply of labor curve, and marginal expenditure curve do not shift directly due to a change in the product's price.

Scenario 14.4: John's Firm Is a Competitor in Your Product Market and Market