Tackle the Test: Free-Response Questions

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  1. Question

    Assume the demand curve for a firm’s product is as shown below and that the firm can hire as many workers as it wants for a wage of $80 per day.

    image
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    Rubric for FRQ 1 (8 points)

    1 point: The firm hires labor in a perfectly competitive labor market.

    1 point: The firm is a price-taker in the labor market. (It can hire all that it wants for $80 per day.)

    1 point: The firm sells its good in a perfectly competitive product market.

    1 point: The horizontal demand curve indicates that the firm is a price-taker in the product market (it can sell all the output it wants at the market price of $5).

    1 point: the additional cost of hiring one more unit of a factor

    1 point: $80

    1 point: $100

    1 point: MRPL = MPL × MR, MPL = 20, MR = $5, so MRPL = 20 × $5 = $100.

  2. Question

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    Maggie’s Pizzeria hires delivery drivers from a perfectly competitive labor market.