An 8-slide visual review of Factor Markets — derived demand, the MRP = wage rule, shifts in factor supply and demand, and the monopsony graph, built right into the page.
In output markets firms sell and households buy. In factor markets that flips. And because no firm wants labor for its own sake, demand for a worker is derived from demand for what the worker produces.
A worker is worth the extra revenue they generate: MRP = MP × MR. Diminishing marginal returns make MP fall, so MRP slopes down. The firm hires while MRP exceeds the cost of the hire and stops where MRP = MFC.
Market labor supply slopes upward, and its intersection with demand sets the wage W*. But an individual competitive firm is a wage taker — it faces a horizontal supply curve at W*, so MFC = W* and it hires where MRP meets that line.
Labor demand shifts when the output price changes, when productivity changes, or when the price of another input changes. Labor supply shifts for reasons on the worker's side — how many are available and what their alternatives look like.
The least-cost rule equalises output per dollar across inputs. The profit-maximizing rule goes further, requiring each input's last dollar to return exactly a dollar of revenue. Least cost is necessary but not sufficient.
With one employer, hiring another worker means raising everyone's wage — so MFC lies above supply. The firm hires where MRP = MFC, then pays the wage found on the supply curve. Workers earn less than their MRP: monopsonistic exploitation.
Set between the monopsony wage and the competitive wage, a minimum wage flattens labor supply over that range, so MFC equals the minimum wage. The firm no longer has to raise everyone's pay to add a worker, so it hires more.
The formulas are short and the graphs are few. If you can compute MRP from a table, apply MRP = MFC, and draw the monopsony graph with the wage read off supply, you have essentially the whole unit.
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How to use the visual review
Spend 30 seconds per step before clicking next. Look at the diagram, then ask yourself: "Could I sketch this from memory and label every part?"
Use the dots below the diagram to jump straight to any step, or the arrow keys to move forward and back.
This is great for review the night before the exam — fast, visual, and covers every core diagram you need to remember from Unit 5.