Deck 13: How Factor Markets Work

Question 1

Consider the mobility of any factor of production.The more broadly we define the use of the factor,the is the mobility of the factor and the is the share of the factor payment that is economic rent.

A)higher; higher
B)higher; lower
C)lower; lower
D)lower; higher

Answer 1

D

Question 2

According to the hypothesis of "equal net advantage,"

A)owners of factors will use their factors in a way that results in the largest financial return.
B)demand curves for a factor in any particular use are not likely to shift.
C)in equilibrium,owners of identical factors of production will receive different net returns for different uses of the factors.
D)supply curves for a factor in any particular use are not likely to shift.
E)owners of factors will use them in a way that results in the largest combined monetary and non- monetary rewards.

Answer 2

E

Question 3

FIGURE 13- 1
Refer to Figure 13- 1.Which point shows that 100% of families earn 100% of the income?

A)A
B)B
C)C
D)D
E)E

Answer 3

E

Question 4

FIGURE 13- 4 The three diagrams below each show a supply curve for oil tankers over a relatively short period of time.

If the supply curve for a factor is perfectly inelastic,the payments to the factor are

A)an unnecessary tax on the factor.
B)wholly economic rent.
C)neither economic rent nor transfer earnings.
D)wholly transfer earnings.
E)partly economic rent and partly transfer earnings.

Question 5

Consider a small firm that is producing winter jackets.It can lease an additional sewing machine for one month for $1200.With this additional machine,the firm can produce an additional 7 jackets during that time period that it sells for $250 each.Hiring the marginal machine adds to the firm's profit and so it should _ the machine.

A)$1200; lease
B)$1750; lease
C)$550; lease
D)- $1200; not lease
E)$0; be indifferent as to whether to lease

Question 6

Suppose all Canadians earned equal incomes.In this case,Canada's Lorenz curve would be

A)the diagonal line.
B)above the diagonal line.
C)non- existent.
D)below the diagonal line.
E)coincident with the horizontal axis.

Question 7

FIGURE 13- 1
Refer to Figure 13- 1.On the Lorenz curve shown in the diagram,

A)perfect equality of income distribution occurs.
B)the functional distribution of income is shown.
C)the richest 20% of families earn over 60% of total income.
D)the richest 20% of families earn almost 40% of total income.
E)the poorest 20% of families earn almost 90% of total income.

Question 8

FIGURE 13- 4 The three diagrams below each show a supply curve for oil tankers over a relatively short period of time.

Refer to Figure 13- 4.Consider the supply of oil tankers to an individual Canadian shipping firm,the North American shipping industry,and the world shipping industry.Which diagram best shows the supply of oil tankers that is relevant to the North American shipping industry?

A)diagram 1
B)diagram 2
C)diagram 3
D)diagrams 2 or 3
E)diagrams 1 or 2

Question 9

FIGURE 13- 3 The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets.

Refer to Figure 13- 3.This factor market is in equilibrium at point B.If a technological change occurs in the production of widgets that allows for increased production from each factor,then

A)total factor earnings will rise and economic rent to the 40th unit will be zero.
B)total factor earnings will decrease and economic rent to the initial 40 units will increase.
C)equilibrium will move toward point D and the factor price will rise.
D)equilibrium will move toward point C and economic rent to the initial 40 units will increase.
E)economic rents to the initial 40 units of the factor will decrease.

Question 10

Consider labour that is hired for $18 per hour.If the last hour hired produces 8 units of output which sells for $2 per unit,that labour- hour adds _ to the firm's profit and so labour should be hired.

A)$16; less
B)$16; more
C)$0; no
D)- $2; less
E)- $128; more

Question 11

Consider the following production and cost schedule for a firm.The first column shows the number of units of a variable factor of production employed by the firm. $$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Total Number of } \\\text { Units of the } \\\text { Factor }\end{array} & \begin{array} { c } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { c } \text { Price per Unit } \\\text { of Output }\end{array} \\\hline 10 & 20 & \$ 10 \\\hline 11 & 44 & \$ 10 \\\hline 12 & 64 & \$ 10 \\\hline 13 & 78 & \$ 10 \\\hline 14 & 84 & \$ 10 \\\hline 15 & 86 & \$ 10 \\\hline\end{array}$$ TABLE 13- 1

-Refer to Table 13- 1.The marginal revenue product of the 15th unit of the factor is

A)$60.
B)$820.
C)$150.
D)$20.
E)- $20.

Question 12

FIGURE 13- 4 The three diagrams below each show a supply curve for oil tankers over a relatively short period of time.

John Smith plays baseball for $500 000 per year,but if he were not a baseball player,his next best alternative would be to earn $35 000 per year as a sales representative.By playing baseball,Smith is earning economic rent of

A)zero.
B)$465 000.
C)$535 000.
D)$35 000.
E)$500 000.

Question 13

Consider the following table for a firm.The first column shows the number of units of a variable factor of production employed by the firm. $$\begin{array} { | c | l | } \hline \begin{array} { c } \text { Total Number of } \\\text { Units of the Factor }\end{array} & \begin{array} { c } \text { Total Number of } \\\text { Units of Output }\end{array} \\\hline 2 & 100 \\\hline 3 & 110 \\\hline 4 & 128 \\\hline 5 & 148 \\\hline 6 & 162 \\\hline 7 & 170 \\\hline 8 & 166 \\\hline\end{array}$$ TABLE 13- 2

-Which of the following is the best definition of the marginal revenue product (MRP)of a factor of production?

A)the average product of the factor multiplied by the price of the output
B)marginal revenue multiplied by total product
C)the change in revenue caused by the sale of an additional unit of output
D)the change in revenue generated by the sale of the product produced by an additional unit of input
E)the increase in output resulting from the use of an additional unit of the factor multiplied by the cost of that factor

Question 14

Profit- maximizing firms increase production up to the point at which the last unit of the variable factor employed adds

A)nothing to marginal cost.
B)just as much to revenue as to profit.
C)positive economic profits.
D)nothing to marginal revenue.
E)just as much to revenue as to cost.

Question 15

Consider the following production and cost schedule for a firm.The first column shows the number of units of a variable factor of production employed by the firm. $$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Total Number of } \\\text { Units of the } \\\text { Factor }\end{array} & \begin{array} { c } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { c } \text { Price per Unit } \\\text { of Output }\end{array} \\\hline 10 & 20 & \$ 10 \\\hline 11 & 44 & \$ 10 \\\hline 12 & 64 & \$ 10 \\\hline 13 & 78 & \$ 10 \\\hline 14 & 84 & \$ 10 \\\hline 15 & 86 & \$ 10 \\\hline\end{array}$$ TABLE 13- 1

-Refer to Table 13- 1.The marginal product of the 12th unit of the factor of production is

A)44.
B)4.
C)64.
D)14.
E)20.

Question 16

The diagram below shows the MRP curve for a firm producing copper plumbing pipe.The factor of production being considered here is hours of labour.
FIGURE 13- 2
Refer to Figure 13- 2.Suppose this firm has the marginal revenue product curve MRP1.At a wage rate of $12,the profit- maximizing firm will hire units of labour.

A)180
B)140
C)100
D)120
E)160

Question 17

Which of the following is the best example of a derived demand?

A)An increase in the wage rate causes firms to substitute capital for labour.
B)A decrease in the price of internet connection will increase the demand for tablet computers.
C)An increase in the price of butter increases the demand for margarine.
D)An increase in demand for cars will increase the demand for auto workers.
E)A decrease in interest rates increases the demand for housing.

Question 18

The hypothesis of equal net advantage explains why

A)the supply of unskilled labour in Canada is as great as it is.
B)two workers doing the same job in the same office are sometimes paid different wage rates.
C)a hard- working employee may get paid less than other employees.
D)lower wages are paid to workers with less qualifications.
E)higher wages must be paid to entice workers to accept less desirable occupations or a less desirable location.

Question 19

Consider the following table for a firm.The first column shows the number of units of a variable factor of production employed by the firm. $$\begin{array} { | c | l | } \hline \begin{array} { c } \text { Total Number of } \\\text { Units of the Factor }\end{array} & \begin{array} { c } \text { Total Number of } \\\text { Units of Output }\end{array} \\\hline 2 & 100 \\\hline 3 & 110 \\\hline 4 & 128 \\\hline 5 & 148 \\\hline 6 & 162 \\\hline 7 & 170 \\\hline 8 & 166 \\\hline\end{array}$$ TABLE 13- 2

-Refer to Table 13- 2.This firm begins to experience diminishing marginal productivity when it hires the unit of the factor.

A)3rd
B)4th
C)5th
D)6th
E)7th

Question 20

Suppose that the municipal government of Calgary decides to tax economic rent on a highly sought- after piece of land.The result would be

A)little or no effect on the supply of the land.
B)an increase in the supply of the land.
C)a rise in the price of land.
D)a shift of the entire tax onto the consumer.
E)a reduction in the supply of land.

Question 21

The table below shows the total production for varying numbers of hours worked producing yo- yos.The firm sells its product and hires its workers in competitive markets. $$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Number of } \\\text { Hours Worked }\end{array} & \begin{array} { c } \text { Number of } \\\text { Yo-Yos } \\\text { Produced }\end{array} & \begin{array} { c } \text { Wage Rate } \\\text { per Hour } ( \$ )\end{array} & \begin{array} { c } \text { Price of Yo- Yos } \\( \$ )\end{array} \\\hline 10 & 60 & 10 & 5 \\\hline 11 & 70 & 10 & 5 \\\hline 12 & 78 & 10 & 5 \\\hline 13 & 84 & 10 & 5 \\\hline 14 & 88 & 10 & 5 \\\hline 15 & 90 & 10 & 5 \\\hline\end{array}$$ TABLE 13- 4

-Refer to Table 13- 4.Which of the following statements best describes the situation of this firm when it is employing 12 hours of labour? The 12th hour of labour hired

A)adds $30 to revenue,but only costs $10 to hire,so this firm should hire more labour.
B)adds $8 to revenue,but costs $10 to hire,so this firm should hire less labour.
C)adds $5 to revenue,but costs $10 to hire,so this firm should hire less labour.
D)adds $10 to revenue and costs $10 to hire,so this firm is maximizing its profit at 12 hours of labour.
E)adds $40 to revenue,but only costs $10 to hire,so this firm should hire more labour.

Question 22

Consider computer programmers as a factor of production.Their factor mobility is quite ,and so to any specific firm the supply of this factor is quite .

A)low; inelastic
B)high; elastic
C)low; elastic
D)high; inelastic

Question 23

FIGURE 13- 3 The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets.

The marginal revenue product of labour is the change in the value of the firm's output resulting from

A)hiring one more unit of labour input.
B)producing one more unit of output.
C)an increase in the marginal physical product of labour.
D)a change in the wage rate paid to labour.
E)a change in the product's price.

Question 24

If the supply curve for a factor is perfectly elastic,the payments to the factor are

A)partly economic rent and partly transfer earnings.
B)an unnecessary tax on the factor.
C)wholly economic rent.
D)neither economic rent nor transfer earnings.
E)wholly transfer earnings.

Question 25

Consider labour that is hired for $18 per hour.If the last hour of labour hired produces 8 units of output which sells for $10 per unit,that labour- hour adds _ to the firm's profit and so labour should be hired.

A)$0; no
B)$62; more
C)$80; more
D)- $80; less
E)$62; less

Question 26

FIGURE 13- 4 The three diagrams below each show a supply curve for oil tankers over a relatively short period of time.

Refer to Figure 13- 4.Consider the supply of oil tankers to an individual Canadian shipping firm,the North American shipping industry,and the world shipping industry.Which diagram best shows the supply of oil tankers that is relevant to the world shipping industry?

A)diagram 1
B)diagram 2
C)diagram 3
D)diagrams 2 or 3
E)diagrams 1 or 2

Question 27

Consider the following production and cost schedule for a firm.The first column shows the number of units of a variable factor of production employed by the firm. $$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Total Number of } \\\text { Units of the } \\\text { Factor }\end{array} & \begin{array} { c } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { c } \text { Price per Unit } \\\text { of Output }\end{array} \\\hline 10 & 20 & \$ 10 \\\hline 11 & 44 & \$ 10 \\\hline 12 & 64 & \$ 10 \\\hline 13 & 78 & \$ 10 \\\hline 14 & 84 & \$ 10 \\\hline 15 & 86 & \$ 10 \\\hline\end{array}$$ TABLE 13- 1

-Refer to Table 13- 1.The marginal product of the 15th unit of the factor of production is

A)0.
B)82.
C)- 2.
D)84.
E)2.

Question 28

The table below shows the total production for varying numbers of hours worked producing yo- yos.The firm sells its product and hires its workers in competitive markets. $$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Number of } \\\text { Hours Worked }\end{array} & \begin{array} { c } \text { Number of } \\\text { Yo-Yos } \\\text { Produced }\end{array} & \begin{array} { c } \text { Wage Rate } \\\text { per Hour } ( \$ )\end{array} & \begin{array} { c } \text { Price of Yo- Yos } \\( \$ )\end{array} \\\hline 10 & 60 & 10 & 5 \\\hline 11 & 70 & 10 & 5 \\\hline 12 & 78 & 10 & 5 \\\hline 13 & 84 & 10 & 5 \\\hline 14 & 88 & 10 & 5 \\\hline 15 & 90 & 10 & 5 \\\hline\end{array}$$ TABLE 13- 4

-Refer to Table 13- 4.If the market price of yo- yos drops to $2.50,how many worker- hours should this profit- maximizing firm hire?

A)15
B)11
C)14
D)12
E)13

Question 29

The diagram below shows the MRP curve for a firm producing copper plumbing pipe.The factor of production being considered here is hours of labour.
FIGURE 13- 2
Refer to Figure 13- 2.Suppose this firm is facing MRP1,a wage rate of $12 per hour and is employing 150 units of labour.At this level of employment,

A)the last unit of labour contributes as much to the firm's costs as to the firm's revenues and so the firm should not change its use of labour.
B)the last unit of labour is adding less to the firm's cost than it is adding to the firm's revenue,so it should increase the use of labour.
C)the firm has shifted the MRP curve to MRP2.
D)the last unit of labour is adding more to the firm's cost than it is adding to the firm's revenue,so it should reduce the use of labour.
E)the firm has shifted the MRP curve to MRP3.

Question 30

Consider the following demand and supply curves in factor markets.
FIGURE 13- 5
The demand for a factor will be more elastic if

A)the demand for the good being produced is inelastic.
B)there is little substitutability between factors.
C)that factor determines a small percentage of total cost.
D)it is easier to substitute between this factor and others.
E)the supply of the factor is elastic.

Question 31

Choose the statement that best describes the difference between "economic rent" and other factor payments.

A)Economic rent is the sum of all factor payments.
B)A reduction in economic rent will not reduce the availability of the factor whereas reducing other payments of factors will reduce their availability.
C)Economic rent is unearned income of the factor whereas other payments are earned.
D)There is no difference between economic rent and other factor payments.
E)Economic rent is not a cost to the firm but other payments are.

Question 32

Consider the following demand and supply curves in factor markets.
FIGURE 13- 5
Refer to Figure 13- 5.The panel that best illustrates the short- run supply of a factor to the economy as a whole is

A)1.
B)2.
C)3.
D)4.
E)1 or 4.

Question 33

Consider a firm's demand curve for labour.If a technological change makes it harder to substitute capital for labour,the demand curve for labour

A)shifts parallel to the left.
B)becomes less elastic.
C)becomes more elastic.
D)shifts parallel to the right.
E)is not affected.

Question 34

Consider the following production and cost schedule for a firm.The first column shows the number of units of a variable factor of production employed by the firm. $$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Total Number of } \\\text { Units of the } \\\text { Factor }\end{array} & \begin{array} { c } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { c } \text { Price per Unit } \\\text { of Output }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { of Production }\end{array} \\\hline 2 & 12 & \$ 10 & \$ 50 \\\hline 3 & 20 & \$ 9 & \$ 55 \\\hline 4 & 26 & \$ 8 & \$ 60 \\\hline 5 & 30 & \$ 7 & \$ 65 \\\hline 6 & 32 & \$ 6 & \$ 70 \\\hline 7 & 32 & \$ 5 & \$ 75 \\\hline\end{array}$$ TABLE 13- 3

-Refer to Table 13- 3.The rise in total revenue generated by hiring the 4th unit of the factor of production is

A)$2.00.
B)$28.00.
C)$3.67.
D)$7.50.
E)$- 11.00.

Question 35

The difference between temporary factor- price differentials and equilibrium factor- price differentials is that

A)temporary differentials are affected by supply and demand whereas equilibrium differentials are not.
B)the government can only eliminate equilibrium differentials.
C)equilibrium differentials lead to,and are eliminated by,factor mobility whereas temporary differentials do not.
D)only equilibrium differentials are interesting for policy purposes.
E)temporary differentials lead to,and are eliminated by,factor mobility whereas equilibrium differentials do not.

Question 36

In a Lorenz curve diagram,the size of the area between the Lorenz curve and the diagonal line represents

A)the percentage of income received by the bottom 20% of families.
B)the percentage of income received by the top 5% of families.
C)the dollar incomes of the bottom 40% of families.
D)complete income equality.
E)the degree of inequality in the distribution of income.

Question 37

Non- monetary considerations tend to be most important in the allocation of

A)land.
B)capital.
C)natural resources.
D)raw materials.
E)labour.

Question 38

Consider the following demand and supply curves in factor markets.
FIGURE 13- 5
Refer to Figure 13- 5.The panel that best illustrates the supply of a factor to a specific firm in the economy is

A)1.
B)2.
C)3.
D)4.
E)1 or 4.

Question 39

Consider the following production and cost schedule for a firm.The first column shows the number of units of a variable factor of production employed by the firm. $$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Total Number of } \\\text { Units of the } \\\text { Factor }\end{array} & \begin{array} { c } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { c } \text { Price per Unit } \\\text { of Output }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { of Production }\end{array} \\\hline 2 & 12 & \$ 10 & \$ 50 \\\hline 3 & 20 & \$ 9 & \$ 55 \\\hline 4 & 26 & \$ 8 & \$ 60 \\\hline 5 & 30 & \$ 7 & \$ 65 \\\hline 6 & 32 & \$ 6 & \$ 70 \\\hline 7 & 32 & \$ 5 & \$ 75 \\\hline\end{array}$$ TABLE 13- 3

-In a perfectly competitive labour market,a profit- maximizing firm will employ labour until the

A)MRP = the product's price.
B)wage = MP.
C)MPP = MRP.
D)wage = the product's price.
E)wage = MRP.

Question 40

Consider labour that is hired for $18 per hour.If the last hour hired produces 8 units of output which sells for $2 per unit,labour should be hired in this situation since the wage is MRP.

A)less; less than
B)more; greater than
C)no; equal to
D)more; less than
E)less; greater than

Question 41

Suppose that experienced oil- field workers are observed to earn a higher wage in Alberta than in Newfoundland.Economists would likely call this

A)an intrinsic difference.
B)an equilibrium differential.
C)a temporary factor- price differential.
D)an acquired difference.
E)equalization of net advantage.

Question 42

A demand for a factor of production is said to be "derived" because the factor's demand depends

A)on the demand for the good or services it helps to make.
B)entirely on corporate advertising.
C)heavily on public choice.
D)heavily on government policy.
E)entirely on the cost of the factor.

Question 43

The diagram below shows the MRP curve for a firm producing copper plumbing pipe.The factor of production being considered here is hours of labour.
FIGURE 13- 2
Refer to Figure 13- 2.Suppose this profit- maximizing firm is facing MRP1 and a wage rate of $12 per hour.Now suppose there is,simultaneously,an increase in demand for copper plumbing pipe (such that MRP shifts to MRP2),and an increase in the wage rate to $16 per hour.The firm should

A)employ 20 more units of labour.
B)employ 40 more units of labour.
C)employ the same number of units of labour.
D)employ 20 fewer units of labour.
E)employ 40 fewer units of labour

Question 44

FIGURE 13- 1
Refer to Figure 13- 1.Which point shows that the bottom 60% of families earn just under 40% of total income?

A)A
B)B
C)C
D)D
E)E

Question 45

Suppose a cook at a diamond mining camp in Canada's North earns a much higher wage than a cook with similar training and experience at an office building in Halifax.Economists would likely call this

A)a compensating differential.
B)an acquired difference.
C)an equilibrium differential.
D)a temporary factor- price differential.
E)an intrinsic difference.

Question 46

Consider the following production and cost schedule for a firm.The first column shows the number of units of a variable factor of production employed by the firm. $\begin{array}{|c|c|l|}\hline \begin{array}{c}\text { Total Number of } \\\text { Units of theFactor }\end{array} & \begin{array}{c}\text { Total Numb er of } \\\text { Units of Output }\end{array} & \begin{array}{c}\text { Price per Unit } \\\text { of Output }\end{array} \\\hline 10 & 20 & \$ 10 \\\hline 11 & 44 & \$ 10 \\\hline 12 & 64 & \$ 10 \\\hline 13 & 78 & \$ 10 \\\hline 14 & 84 & \$ 10 \\\hline 15 & 86 & \$ 10 \\\hline\end{array}$ TABLE 13- 1

-Refer to Table 13- 1.The total revenue of the output produced by 15 units of the factor is

A)$1440.
B)$780.
C)$860.
D)$150.
E)$640.

Question 47

FIGURE 13- 4 The three diagrams below each show a supply curve for oil tankers over a relatively short period of time.

All of the following are examples of equilibrium factor- price differentials,EXCEPT

A)higher pay to a dentist than to a dental hygienist.
B)the difference in average wages in Toronto and Dryden,Ontario.
C)the prices of two pieces of land,one with a good supply of water and one without.
D)the wages earned by labour of varying ability.
E)an income differential that induces increased rates of entry into the higher paid professions.

Question 48

The term "economic rent" refers to

A)transfer earnings plus opportunity cost.
B)factor payments in excess of transfer earnings.
C)the opportunity cost of land.
D)a payment for use of land.
E)economic profit.

Question 49

Consider the following production and cost schedule for a firm.The first column shows the number of units of a variable factor of production employed by the firm. $$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Total Number of } \\\text { Units of the } \\\text { Factor }\end{array} & \begin{array} { c } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { c } \text { Price per Unit } \\\text { of Output }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { of Production }\end{array} \\\hline 2 & 12 & \$ 10 & \$ 50 \\\hline 3 & 20 & \$ 9 & \$ 55 \\\hline 4 & 26 & \$ 8 & \$ 60 \\\hline 5 & 30 & \$ 7 & \$ 65 \\\hline 6 & 32 & \$ 6 & \$ 70 \\\hline 7 & 32 & \$ 5 & \$ 75 \\\hline\end{array}$$ TABLE 13- 3

-Refer to Table 13- 3.A profit- maximizing firm would never hire more than the unit of this factor of production.

A)3rd
B)5th
C)4th
D)7th
E)6th

Question 50

FIGURE 13- 4 The three diagrams below each show a supply curve for oil tankers over a relatively short period of time.

Consider a small firm that is producing winter jackets.It can lease an additional sewing machine for one month for $2400.With this additional machine,the firm can produce an additional 4 jackets during that time period that it sells for $550 each.Hiring the marginal machine adds to the firm's profit and so it should _ the machine.

A)$0; be indifferent as to whether to lease
B)$2400; lease
C)- $200; not lease
D)$200; lease
E)- $2400; not lease

Question 51

Consider a small firm that is producing winter jackets.It can lease an additional sewing machine for one month for $750.With this additional machine,the firm can produce an additional 6 jackets during that time period that it sells for $125 each.Hiring the marginal machine adds to the firm's profit and so it should _ the machine.

A)- $750; lease
B)$0; be indifferent as to whether to lease
C)$750; not lease
D)- $750; not lease
E)$750; lease

Question 52

Consider the following production and cost schedule for a firm.The first column shows the number of units of a variable factor of production employed by the firm. $$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Total Number of } \\\text { Units of the } \\\text { Factor }\end{array} & \begin{array} { c } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { c } \text { Price per Unit } \\\text { of Output }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { of Production }\end{array} \\\hline 2 & 12 & \$ 10 & \$ 50 \\\hline 3 & 20 & \$ 9 & \$ 55 \\\hline 4 & 26 & \$ 8 & \$ 60 \\\hline 5 & 30 & \$ 7 & \$ 65 \\\hline 6 & 32 & \$ 6 & \$ 70 \\\hline 7 & 32 & \$ 5 & \$ 75 \\\hline\end{array}$$ TABLE 13- 3

-The demand for a factor will be less elastic

A)if there is a high degree of substitutability between factors.
B)if the demand for the good being produced is elastic.
C)the larger the extent of diminishing returns for the factor.
D)if marginal physical product decreases slowly as more of the factor is used.
E)if the supply of the factor is elastic.

Question 53

FIGURE 13- 4 The three diagrams below each show a supply curve for oil tankers over a relatively short period of time.

Refer to Figure 13- 4.Consider the supply of oil tankers to an individual Canadian shipping firm,the North American shipping industry,and the world shipping industry.Which diagram best shows the supply of oil tankers that is relevant to an individual Canadian firm?

A)diagram 1
B)diagram 2
C)diagram 3
D)diagrams 2 or 3
E)diagrams 1 or 2

Question 54

FIGURE 13- 3 The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets.

Refer to Figure 13- 3.This factor market is initially in equilibrium at point B.Assume that there is a decrease in the demand for widgets and a new equilibrium is established at point A.Which of the following statements about point A is true?

A)Transfer earnings for the 20th unit of the factor are $6 and economic rent of the 20th unit of the factor is $2.
B)The marginal revenue product of the 20th unit of the factor is $120 and economic rent of the 20th unit of the factor is $6.
C)Total economic rent is $120.
D)Total transfer earnings are $120.
E)The marginal revenue product of the 20th unit of the factor is $6 and economic rent of the 20th unit of the factor is $0.

Question 55

In a competitive labour market,an increase in the demand for labour might be due to an increase in the

A)supply of labour.
B)wage rate.
C)demand for the product that labour produces.
D)supply of the product that labour produces.
E)supply of the other factors.

Question 56

A temporary factor- price differential is one which

A)derives from intrinsic differences in the factors themselves.
B)is seldom self- eliminating.
C)will tend to be eliminated in the long run.
D)will hamper the reallocation of resources from declining to growing industries.
E)will reflect a permanent state of disequilibrium.

Question 57

Consider the following demand and supply curves in factor markets.
FIGURE 13- 5
Refer to Figure 13- 5.Assume that all four factor markets are labour markets.The total amount paid to the workers is "economic rent" in diagram

A)1.
B)2.
C)3.
D)4.
E)1 or 4.

Question 58

The diagram below shows the MRP curve for a firm producing copper plumbing pipe.The factor of production being considered here is hours of labour.
FIGURE 13- 2
Refer to Figure 13- 2.Assume that the firm is a perfect competitor and the price of the firm's output is fixed.We know that the firm's MRP curve is

A)the same shape as the firm's marginal revenue curve.
B)flatter than the firm's marginal product curve for labour.
C)horizontal,if the firm is perfectly competitive.
D)steeper than the firm's marginal product curve for labour.
E)the same shape as the firm's marginal product curve for labour.

Question 59

Consider the following production and cost schedule for a firm.The first column shows the number of units of a variable factor of production employed by the firm. $$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Total Number of } \\\text { Units of the } \\\text { Factor }\end{array} & \begin{array} { c } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { c } \text { Price per Unit } \\\text { of Output }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { of Production }\end{array} \\\hline 2 & 12 & \$ 10 & \$ 50 \\\hline 3 & 20 & \$ 9 & \$ 55 \\\hline 4 & 26 & \$ 8 & \$ 60 \\\hline 5 & 30 & \$ 7 & \$ 65 \\\hline 6 & 32 & \$ 6 & \$ 70 \\\hline 7 & 32 & \$ 5 & \$ 75 \\\hline\end{array}$$ TABLE 13- 3

-Alfred Marshall's concept of "transfer earnings" denotes

A)the amount the factor earns every time it transfers between locations.
B)the amount a factor earns over and above what is necessary to keep the factor from transferring to an alternative use.
C)the value of the factor to its user.
D)the amount that a factor must earn to keep it from transferring to another use.
E)a return to a particular factor which must be the same for all uses of that factor.

Question 60

Suppose Harrison Ford makes 2 movies per year and earns $10 million per movie.Suppose that if he weren't making movies his next best alternative would be to earn $500 000 per year endorsing shampoo.By making movies,Harrison Ford

A)is earning economic rent of $500 000 per year.
B)is not earning economic rent.
C)is earning economic rent of $19 500 000 per year.
D)is earning economic rent of $20 000 000 per year.
E)is earning economic rent of $20 500 000 per year.

Question 61

Consider the following production and cost schedule for a firm.The first column shows the number of units of a variable factor of production employed by the firm. $$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Total Numb er of } \\\text { Units of theF actor }\end{array} & \begin{array} { c } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { c } \text { Price per Unit } \\\text { of Output }\end{array} \\\hline 10 & 20 & \$ 10 \\\hline 11 & 44 & \$ 10 \\\hline 12 & 64 & \$ 10 \\\hline 13 & 78 & \$ 10 \\\hline 14 & 84 & \$ 10 \\\hline 15 & 86 & \$ 10 \\\hline\end{array}$$ TABLE 13- 1

-Refer to Table 13- 1.The marginal revenue product of the 14th unit of the factor is

A)$700.
B)- $60.
C)$140.
D)$60.
E)$840.

Question 62

FIGURE 13- 3 The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets.

Refer to Figure 13- 3.This factor market is in equilibrium at point B.Which of the following statements best describes factor payments at point B?

A)total factor earnings are $320 and the 40th unit earns zero rent
B)total factor earnings are $320
C)economic rent to the 40th unit is $320
D)total income paid to the factor is $8
E)total factor earnings are $320 and the 40th unit earns economic rent of $8

Question 63

The table below shows the total production for varying numbers of hours worked producing yo- yos.The firm sells its product and hires its workers in competitive markets. $$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Number of } \\\text { Hours Worked }\end{array} & \begin{array} { c } \text { Number of } \\\text { Yo-Yos } \\\text { Produced }\end{array} & \begin{array} { c } \text { Wage Rate } \\\text { per Hour } ( \$ )\end{array} & \begin{array} { c } \text { Price of Yo- Yos } \\( \$ )\end{array} \\\hline 10 & 60 & 10 & 5 \\\hline 11 & 70 & 10 & 5 \\\hline 12 & 78 & 10 & 5 \\\hline 13 & 84 & 10 & 5 \\\hline 14 & 88 & 10 & 5 \\\hline 15 & 90 & 10 & 5 \\\hline\end{array}$$ TABLE 13- 4

-Refer to Table 13- 4.If plotted on a graph,the marginal revenue product curve for the "number of hours worked" would be the same as

A)the firm's marginal product curve,and would be downward sloping and concave to the origin.
B)the firm's marginal revenue curve,and would be horizontal at $5 because this firm is operating in a competitive labour market.
C)the firm's demand curve for hours worked,and would be downward sloping and linear.
D)the firm's demand curve for yo- yos,and would be downward sloping and linear.
E)the firm's marginal product curve,and would be downward sloping and convex to the origin.

Question 64

FIGURE 13- 3The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets.

Refer to Figure 13- 3.This factor market is initially in equilibrium at point B,but changes occur that cause the equilibrium to shift to point D (S curve shifts left).At the new equilibrium,total factor earnings compared to the initial equilibrium.

A)decreased by $30
B)increased by $30
C)remained the same
D)increased by $330
E)increased by $10

Question 65

Consider the following production and cost schedule for a firm.The first column shows the number of units of a variable factor of production employed by the firm. $$\begin{array} { | c | l | l | c | } \hline \begin{array} { c } \text { Total Number of } \\\text { Units of the Factor }\end{array} & \begin{array} { c } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { l } \text { Price per Unit } \\\text { of Output }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { of Production }\end{array} \\\hline 2 & 12 & \$ 10 & \$ 50 \\\hline 3 & 20 & \$ 9 & \$ 55 \\\hline 4 & 26 & \$ 8 & \$ 60 \\\hline 5 & 30 & \$ 7 & \$ 65 \\\hline 6 & 32 & \$ 6 & \$ 70 \\\hline 7 & 32 & \$ 5 & \$ 75 \\\hline\end{array}$$ TABLE 13- 3

-Refer to Table 13- 3.The marginal product of the 4th unit of the factor of production is

A)4.
B)8.
C)30.
D)26.
E)6.

Question 66

The table below shows the total production for varying numbers of hours worked producing yo- yos.The firm sells its product and hires its workers in competitive markets. $$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Number of } \\\text { Hours Worked }\end{array} & \begin{array} { c } \text { Number of } \\\text { Yo-Yos } \\\text { Produced }\end{array} & \begin{array} { c } \text { Wage Rate } \\\text { per Hour } ( \$ )\end{array} & \begin{array} { c } \text { Price of Yo- Yos } \\( \$ )\end{array} \\\hline 10 & 60 & 10 & 5 \\\hline 11 & 70 & 10 & 5 \\\hline 12 & 78 & 10 & 5 \\\hline 13 & 84 & 10 & 5 \\\hline 14 & 88 & 10 & 5 \\\hline 15 & 90 & 10 & 5 \\\hline\end{array}$$ TABLE 13- 4

-Refer to Table 13- 4.What is the marginal cost of the variable factor employed by this firm?

A)$30
B)$10
C)$5
D)$0
E)$20

Question 67

Consider the following production and cost schedule for a firm.The first column shows the number of units of a variable factor of production employed by the firm. $$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Total Numb er of } \\\text { Units of theF actor }\end{array} & \begin{array} { c } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { c } \text { Price per Unit } \\\text { of Output }\end{array} \\\hline 10 & 20 & \$ 10 \\\hline 11 & 44 & \$ 10 \\\hline 12 & 64 & \$ 10 \\\hline 13 & 78 & \$ 10 \\\hline 14 & 84 & \$ 10 \\\hline 15 & 86 & \$ 10 \\\hline\end{array}$$ TABLE 13- 1

-Refer to Table 13- 1.Diminishing marginal returns are present for which units of the factor of production?

A)11th unit only
B)10th unit only
C)13th unit only
D)12th unit only
E)all units shown in the table

Question 68

When the wage paid to workers in job A increases relative to the wage in job B,then,ceteris paribus,the

A)non- monetary advantages of job B will decrease.
B)net advantage of job A will increase relative to job B.
C)monetary advantage of job A will increase,but not its net advantage.
D)net advantage of job B will increase relative to job A.
E)non- monetary advantages of job A will increase.

Question 69

FIGURE 13- 1
Refer to Figure 13- 1.The diagonal line in the diagram

A)has no real purpose.
B)shows the distribution of income over time.
C)shows where the Lorenz curve would be if there were complete income equality.
D)illustrates the functional distribution of income.
E)shows the actual distribution of income.

Question 70

Consider the following table for a firm.The first column shows the number of units of a variable factor of production employed by the firm. $$\begin{array} { | c | l | } \hline \begin{array} { c } \text { Total Number of } \\\text { Units of the Factor }\end{array} & \begin{array} { c } \text { Total Number of } \\\text { Units of Output }\end{array} \\\hline 2 & 100 \\\hline 3 & 110 \\\hline 4 & 128 \\\hline 5 & 148 \\\hline 6 & 162 \\\hline 7 & 170 \\\hline 8 & 166 \\\hline\end{array}$$ TABLE 13- 2

-Refer to Table 13- 2.Suppose the firm is a perfect competitor and faces a given price of the product equal to $2 per unit.The marginal revenue product of the 5th unit of the factor is

A)$40.
B)$128.
C)$20.
D)$148.
E)$2.

Question 71

Consider the following production and cost schedule for a firm.The first column shows the number of units of a variable factor of production employed by the firm. $$\begin{array} { | c | c | l | } \hline \begin{array} { c } \text { Total Number of } \\\text { Units of theFactor }\end{array} & \begin{array} { c } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { l } \text { Price per Unit } \\\text { of Output }\end{array} \\\hline 10 & 20 & \$ 10 \\\hline 11 & 44 & \$ 10 \\\hline 12 & 64 & \$ 10 \\\hline 13 & 78 & \$ 10 \\\hline 14 & 84 & \$ 10 \\\hline 15 & 86 & \$ 10 \\\hline\end{array}$$ TABLE 13- 1

-Refer to Table 13- 1.How many units of this factor of production would the profit- maximizing firm choose to hire?

A)11
B)14
C)13
D)12
E)It is not possible to determine with the data provided.

Question 72

The marginal revenue product curve for a monopolist would be its marginal product curve because .

A)flatter than; it must pay a higher wage to labour
B)steeper than; its MR decreases as output increases
C)steeper than; its product's price increases as output increases
D)the same as; the MRP curve always has the same shape as the MP curve
E)flatter than; its product's price decreases as output increases

Question 73

Which of the following statements about equilibrium factor- price differentials is correct? They

A)may be caused by differences in the intrinsic qualities of factors.
B)tend to be self- eliminating.
C)are unrelated to differences in non- monetary benefits.
D)are unrelated to acquired differences in factors.
E)will be eliminated when the allocation of resources is in long- run equilibrium.

Question 74

Consider labour hired for $18 per hour.If the last hour of labour hired produces 8 units of output which sells for $10 per unit,labour should be hired in this situation since the wage is MRP.

A)less; less than
B)no; equal to
C)more; less than
D)more; greater than
E)less; greater than

Question 75

The table below shows the total production for varying numbers of hours worked producing yo- yos.The firm sells its product and hires its workers in competitive markets. $$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Number of } \\\text { Hours Worked }\end{array} & \begin{array} { c } \text { Number of } \\\text { Yo-Yos } \\\text { Produced }\end{array} & \begin{array} { c } \text { Wage Rate } \\\text { per Hour } ( \$ )\end{array} & \begin{array} { c } \text { Price of Yo- Yos } \\( \$ )\end{array} \\\hline 10 & 60 & 10 & 5 \\\hline 11 & 70 & 10 & 5 \\\hline 12 & 78 & 10 & 5 \\\hline 13 & 84 & 10 & 5 \\\hline 14 & 88 & 10 & 5 \\\hline 15 & 90 & 10 & 5 \\\hline\end{array}$$ TABLE 13- 4

-Refer to Table 13- 4.Which of the following statements best describes the situation of this firm when it is employing 15 hours of labour? The 15th hour of labour hired

A)adds $20 to revenue,but only costs $10 to hire,so this firm should hire more labour.
B)adds $10 to revenue and costs $10 to hire,so this firm is maximizing its profit at 15 hours of labour.
C)adds $50 to revenue,but only costs $10 to hire,so this firm should hire more labour.
D)adds $2 to revenue,but costs $10 to hire,so this firm should hire less labour.
E)adds $5 to revenue,but costs $10 to hire,so this firm should hire less labour.

Question 76

A monopolist will continue to increase production until the marginal cost of the variable factor is

A)equal to zero.
B)equal to the marginal revenue of the firm's output.
C)less than the marginal revenue of the firm's output.
D)equal to the marginal revenue product of the factor.
E)greater than the marginal revenue of the firm's output.

Question 77

Consider the following production and cost schedule for a firm.The first column shows the number of units of a variable factor of production employed by the firm. $$\begin{array} { | c | l | l | c | } \hline \begin{array} { c } \text { Total Number of } \\\text { Units of the Factor }\end{array} & \begin{array} { c } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { l } \text { Price per Unit } \\\text { of Output }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { of Production }\end{array} \\\hline 2 & 12 & \$ 10 & \$ 50 \\\hline 3 & 20 & \$ 9 & \$ 55 \\\hline 4 & 26 & \$ 8 & \$ 60 \\\hline 5 & 30 & \$ 7 & \$ 65 \\\hline 6 & 32 & \$ 6 & \$ 70 \\\hline 7 & 32 & \$ 5 & \$ 75 \\\hline\end{array}$$ TABLE 13- 3

-Refer to Table 13- 3.The increase in total revenue generated by hiring the 5th unit of the factor of production is

A)- $2.00.
B)$2.00.
C)- $11.00.
D)$11.00.
E)$7.50.

Question 78

Which of the following concepts is most similar to the concept of "transfer earnings"?

A)factor price differentials
B)factor payments
C)opportunity cost
D)equal net advantage
E)factor mobility

Question 79

Consider the following production and cost schedule for a firm.The first column shows the number of units of a variable factor of production employed by the firm. $$\begin{array} { | c | l | l | c | } \hline \begin{array} { c } \text { Total Number of } \\\text { Units of the Factor }\end{array} & \begin{array} { c } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { l } \text { Price per Unit } \\\text { of Output }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { of Production }\end{array} \\\hline 2 & 12 & \$ 10 & \$ 50 \\\hline 3 & 20 & \$ 9 & \$ 55 \\\hline 4 & 26 & \$ 8 & \$ 60 \\\hline 5 & 30 & \$ 7 & \$ 65 \\\hline 6 & 32 & \$ 6 & \$ 70 \\\hline 7 & 32 & \$ 5 & \$ 75 \\\hline\end{array}$$ TABLE 13- 3

-Other things being equal,if it becomes more difficult to substitute capital for labour in the production of cell phones,the demand curve for labour in that industry

A)will shift parallel to the left.
B)will become more inelastic.
C)will shift parallel to the right.
D)will remain unchanged.
E)will become more elastic.

Question 80

Consider the following production and cost schedule for a firm.The first column shows the number of units of a variable factor of production employed by the firm. $$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Total Numb er of } \\\text { Units of theF actor }\end{array} & \begin{array} { c } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { c } \text { Price per Unit } \\\text { of Output }\end{array} \\\hline 10 & 20 & \$ 10 \\\hline 11 & 44 & \$ 10 \\\hline 12 & 64 & \$ 10 \\\hline 13 & 78 & \$ 10 \\\hline 14 & 84 & \$ 10 \\\hline 15 & 86 & \$ 10 \\\hline\end{array}$$ TABLE 13- 1

-Suppose the government decides,in the interest of "fairness," to impose a policy prohibiting factor- price differentials.The likely result would be

A)a decrease in net factor demands.
B)a horizontal factor supply curve.
C)a shortage of factors in uses with low net advantage.
D)an increase in factor mobility.
E)equilibrium in factor markets.