AP Microeconomics Quiz: Profit Maximizing Behavior In Factor Markets
2 questions · exam conditions
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Profit Maximizing Behavior In Factor MarketsQuestion 1 of 2

A perfectly competitive firm is a price taker in both the output and labor markets. The market wage is $W = $60 per worker per day. The firm's marginal revenue product (MRP) schedule for labor is shown in the table. Based on the firm's MRP and wage, how many workers should the firm hire to maximize profit?

MRP schedule (per day):

  • 1st worker: $120
  • 2nd worker: $100
  • 3rd worker: $80
  • 4th worker: $60
  • 5th worker: $40
Question graphic
Hire 2 workers
Hire 3 workers
Hire 4 workers
Hire 5 workers
Hire 1 worker
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AP Microeconomics Quiz

AP Microeconomics Quiz: Profit Maximizing Behavior In Factor Markets

Practice Profit Maximizing Behavior In Factor Markets in AP Microeconomics with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Profit Maximizing Behavior In Factor Markets, giving you a quick way to practice the rules, question types, and explanations that matter most for AP Microeconomics.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

A perfectly competitive firm is a price taker in both the output and labor markets. The market wage is $W = $60 per worker per day. The firm's marginal revenue product (MRP) schedule for labor is shown in the table. Based on the firm's MRP and wage, how many workers should the firm hire to maximize profit?

MRP schedule (per day):

  • 1st worker: $120
  • 2nd worker: $100
  • 3rd worker: $80
  • 4th worker: $60
  • 5th worker: $40
  1. Hire 2 workers
  2. Hire 3 workers
  3. Hire 4 workers (correct answer)
  4. Hire 5 workers
  5. Hire 1 worker

Explanation: This question tests profit-maximizing hiring decisions in factor markets. Marginal Revenue Product (MRP) represents the additional revenue generated by hiring one more worker. With a wage of 60,wecompareeachworker′sMRPtothewage:1stworker(60, we compare each worker's MRP to the wage: 1st worker (120 > 60),2ndworker(60), 2nd worker (100 > 60),3rdworker(60), 3rd worker (80 > 60),and4thworker(60), and 4th worker (60 = $60). The firm should hire the 4th worker since MRP equals the wage at this point. A common misconception is confusing marginal product (physical output) with MRP (revenue from output). The profit-maximizing strategy is to hire workers as long as MRP ≥ wage, stopping when they're equal—this ensures each worker adds more to revenue than to cost.

Question 2

A perfectly competitive firm is a price taker in both the output and labor markets. The market wage is $W = $95 per worker per hour. The firm's marginal revenue product (MRP) schedule for labor is shown in the table. Based on the firm's MRP and wage, at what employment level is profit maximized?

MRP schedule (per hour):

  • 1st worker: $140
  • 2nd worker: $120
  • 3rd worker: $100
  • 4th worker: $90
  • 5th worker: $80
  1. Hire 2 workers
  2. Hire 3 workers (correct answer)
  3. Hire 4 workers
  4. Hire 1 worker
  5. Hire 5 workers

Explanation: This problem requires applying profit-maximizing hiring rules in competitive factor markets. MRP measures the additional revenue from hiring one more worker—it's the value of what that worker produces. Given a wage of 95,weevaluate:1stworker(95, we evaluate: 1st worker (140 > 95),2ndworker(95), 2nd worker (120 > 95),3rdworker(95), 3rd worker (100 > 95),but4thworker(95), but 4th worker (90 < $95). The firm maximizes profit by hiring 3 workers, as the 4th would cost more than the revenue generated. Students often mistakenly hire until MRP falls below wage rather than stopping at the last profitable worker. The key strategy is to continue hiring while MRP exceeds or equals the wage rate, ensuring positive marginal profit from each worker.