Quinn and Courtney manage a factory in the toy airplane industry, which is perfectly competitive in both the product market and the factor market. They have compiled the following per-
| Number of workers | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
| Marginal product | – | 6 | 5 | 4 | 3 | 2 | 1 |
The price of toy airplanes is $100, the wage per worker is $200, and the rent per machine is $400. Assume the firm always produces the profit-
Draw a graph of Quinn and Courtney’s supply and demand curves for labor using the specific data from part a above. Be sure to indicate the equilibrium wage rate and the number of workers hired. Label all curves and axes.
Explain why the demand curve for labor slopes the way it does.
On your factor market graph from part b, show the effect of a decrease in the supply of workers in the toy airplane industry. Add the subscript “new” to the label of anything that changes. (7 points)
Rubric for FRQ (6 points)
1 point: 5 workers
1 point: The horizontal axis is labeled “Quantity of labor,” the vertical axis is labeled “Wage rate,” and the firm’s demand curve for labor is downward-sloping.
1 point: The firm’s supply curve for labor is horizontal at a wage rate of $200.
1 point: The equilibrium quantity of 5 workers is labeled below the intersection of the firm’s labor demand curve and its labor supply curve.
1 point: The demand curve for labor slopes downward due to diminishing marginal returns.
1 point: The new labor supply curve for the firm is labeled and lies above the original labor supply curve.
1 point: The new equilibrium wage rate is labeled above the initial wage rate of $200 and the new equilibrium quantity is labeled to the left of the initial equilibrium quantity.