AP Microeconomics / Factor Markets
Lesson
Hiring where extra revenue meets the wage
Labor demand is a derived demand. MRP tells you what one more worker is worth.
Learning goals
- Compute marginal revenue product from extra output and extra revenue.
- Find the profit-maximizing number of workers in a competitive labor market.
Explanation
Firms do not hire labor for its own sake. They hire it because workers help produce goods buyers want. If the product becomes more valuable, labor demand shifts out. If workers become more productive, the same shift can happen.
Marginal revenue product is the extra revenue from one more unit of an input. In a competitive output market, that is extra product times the product price. Keep hiring while MRP is at least the going wage. The last worker should roughly pay for themselves.
Key terms
- Derived demand. Demand for an input that comes from demand for the good the input helps produce.
- Marginal revenue product. The additional revenue generated by employing one more unit of an input.
Common mistakes
- Hiring until marginal product, not MRP, equals the wage.
- Forgetting that a fall in product price shifts labor demand left.
Practice
Original Marlow Works items. Check the answer explanation after you try.
A binding price ceiling is set below equilibrium in the market for rental apartments. What is the most likely result?
Original Marlow Works item — not a College Board question.
Take your time—this is practice, not a test.
Answer explanation
Product price rises and worker productivity is unchanged. What happens to a firm’s labor demand?
Answer. Labor demand shifts right because each worker’s output is worth more revenue.
MRP = MP × P in a competitive product market, so a higher P raises MRP at each quantity of labor.
Related resources
External links with reuse status. Marlow Works is independent and does not copy restricted exam or textbook material.
Official / link only
AP Microeconomics course page
Official six-unit framework for markets, costs, and market failure.
College Board · All rights reserved · accessed 2026-10-01
Open sourceCC BY — attribution required
Principles of Microeconomics: Scarcity and Social Provisioning
Open microeconomics background for scarcity, markets, and elasticity.
Open Textbook Library listing · CC BY · accessed 2026-10-01
Open source