Wages and Employment in Perfect Competition

2.2. Answers to Try It! Problems

1. A reduction in market price would decrease the marginal revenue product of labor. Since the demand for labor is the downward-sloping portion of the marginal revenue product curve, the demand for labor by TeleTax would shift to the left.
2. An increase in the market fee that TeleTax pays the accountants it hires corresponds to an increase in marginal factor cost. TeleTax's demand curve would not shift; rather TeleTax would move up along its same demand curve for accountants. As a result, TeleTax would hire fewer accountants.
3. An increase in the marginal product of each accountant corresponds to a rightward shift in the marginal revenue product curve and hence a rightward shift in TeleTax's demand curve for accountants.