Chapter Learning Objectives

  • Distinguish economic from accounting profits.
  • Understand the following concepts: a production function, the marginal product of labor, and the law of diminishing marginal returns.
  • Clearly state the general principles that underlie the profit-maximizing choice of a variable.
  • Determine the conditions that govern a perfectly competitive firm’s demand for labor.
  • Understand the effects of monopsony and monopoly power on the demand for labor.
  • Explain why an increase in the minimum wage may raise a monopsonist’s demand for labor.