# Factor Markets (2001 # 3)

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This video lesson is from the 2001 AP Microeconomics Exam. This video is designed for students to practice the question to enhance their content knowledge on factor markets, and as a resource for teachers to use in their classroom. There is no audio in this video lesson, just a continuous video of the questions and answers. The overall objective is for students to pause the video, answer the questions, and play the video to see if they get the questions correct. This is where teachers can explain why the answer is correct to their students if needed. I hope you find this video lesson helpful. This question tested the student’s knowledge of the production function and of diminishing returns. The correct answer should show that worker number 3 has the highest marginal product (i.e., 60-35 = 25 cars washed). With additional workers the marginal product falls. This is consistent with the Law of Diminishing Returns. That law states that as more units of a variable input (labor) are employed with a fixed input, output will eventually increase at a decreasing rate. The sixth worker would never be hired since the marginal product of that worker is negative (80-85= -5 cars). A firm would never hire a unit of an input that reduces total output. The firm would be willing to pay the fourth worker as much as its marginal revenue product or \$90 per day, found by multiplying the price of a car wash by the number of cars washed by the fourth worker (i.e., \$6 x 15 = \$90). The question calls for the student to give a definition of the law of diminishing returns. Frequently, students neglected to mention that the law of diminishing returns applies in the short run when there are both a variable input and a fixed input.