Deck 18: Pricing the Factors of Production

Question 1

A profit-maximizing firm will hire inputs until MRP = P of the input.

Answer 1

True

Question 2

Capital refers to an inventory or a stock of productive equipment and machines.

Answer 2

True

Question 3

If marginal revenue product is less than price of the input, the firm should use more of the input.

Answer 3

False

Question 4

The quantity demanded of an input normally rises as its price rises.

Question 5

Demand for an input is derived from the demand for the final product.

Question 6

The derived demand curve for an input is the MPP curve.

Question 7

The change in the capital stock is the return on investment.

Question 8

The demand for borrowed funds is a derived demand.

Question 9

The price for loanable funds is the interest rate.

Question 10

Capital is a flow of resources into the production of investment goods.

Question 11

Interest is the payment for the use of funds used to produce capital.

Question 12

The distribution of income in a market economy is determined by the minimum wage laws.

Question 13

An inward shift of the demand curve for a product causes outward shifts in the demand curves for all the factors used to produce the product.

Question 14

Investment is a flow of resources into the production of new capital.

Question 15

MPP is the additional output that results from a one-unit increase in use of the input.

Question 16

The demand curve for any input is the downward-sloping portion of its marginal revenue product curve.

Question 17

An increase in price for an output good decreases the quantity demanded for input factors.

Question 18

The rate of interest is the price at which money is borrowed and loaned.

Question 19

MRP represents what the marginal physical product is worth.

Question 20

The marginal revenue product of an input is the marginal physical product times the price per unit of output under perfect competition.

Question 21

Usury laws interfere with the automatic workings of the market mechanism.

Question 22

Economic rent is a payment for a factor of production that elicits an increase in the quantity supplied.

Question 23

The difference in values between money today and money in the future is lower when the rate of interest is higher.

Question 24

Marginal land is land that is not worth anything under any circumstances.

Question 25

If the credit market is close to being a competitive market, an interest rate ceiling imposed by usury laws will bring misallocations of resources.

Question 26

Economic rent refers to profit derived from owning real estate.

Question 27

In general, the quantity of savings supplied to be used for lending increases with the rate of interest.

Question 28

Usury laws are designed to ensure that interest rates in the market do not exceed acceptable norms.

Question 29

A change in the interest rate changes the demand for loanable funds.

Question 30

As the rate of interest on borrowed funds increases, the quantity of investment funds demanded diminishes.

Question 31

Marginal land is on the borderline of being used in production.

Question 32

The supply curve for land is perfectly elastic.

Question 33

As interest rates rise, more and more investments become profitable for a firm.

Question 34

On the surface, Usury laws are designed to protect consumers from exorbitant interest rates.

Question 35

Marginal land can be defined as land that earns neither profits nor losses.

Question 36

An increase in interest rates decreases the marginal revenue product of investment.

Question 37

Price ceilings can be used to lower usurious interest rates.

Question 38

The derived demand for borrowed funds has the characteristic negative slope of any demand curve.

Question 39

Economic rent is the minimum payment necessary to induce any of the factor to be supplied.

Question 40

A sum of money to be received in the future is worth more than a sum of money today.

Question 41

Economic rent is the payment made to a factor of production above the amount necessary to induce any of that factor to be supplied at its present employment.

Question 42

The marginal productivity principle has some relevance to organizing production in a socialist society.

Question 43

Entrepreneurship is the act of starting new firms and taking the risks that are necessary in business opportunities.

Question 44

Profit is the return to entrepreneurship.

Question 45

The marginal productivity principle demonstrates that distribution under a capitalist system is ethically valid.

Question 46

Innovation is the act of generating an idea for a new product.

Question 47

Invention is the act of generating a new idea.

Question 48

Economic rent is paid only to land, and not to other resources.

Question 49

Discounting or computing present value is a way of comparing dollar values that will appear at different points in time.

Question 50

Almost all of the rent that tenants pay to landlords of apartments buildings is economic rent .

Question 51

Innovation is the act of putting an invention to practical use.

Question 52

When the interest rate is higher, the difference between the value of money today and tomorrow is smaller.

Question 53

Corporate profits account for the largest portion of U.S. national income.

Question 54

Economists consider rent seeking activity to be highly productive.

Question 55

"Rent seeking" describes the search and battle for opportunities to collect economic rents.

Question 56

Economic rent is the amount of money above and beyond that necessary to keep the factor of production employed where it is.

Question 57

The theory of economic rent can be used to explain high incomes received by movie stars and athletes.

Question 58

Discounted cash flows shows that dollars received now are worth less than dollars received in the future.

Question 59

High profits in some risky industries attract additional entrepreneurs to those industries.

Question 60

The marginal productivity principle has relevance only in a capitalist economy, and not in a socialist system.

Question 61

The distribution of income in a market economy is determined by

A)the level of employment and prices of the factors of production.
B)the prices of factors of production.
C)largely unknown forces, which economists seek to discover.
D)decisions of government offices related to distribution.

Question 62

The marginal productivity principle says that a profit-maximizing firm should

A)hire capital until its marginal product is zero.
B)hire labor until another worker costs more to hire than he or she can earn for the firm.
C)hire the quantities of capital and of labor at which their marginal products are equal.
D)hire capital until its marginal product is negative.

Question 63

If a ton of steel sells for $15,000 and a car made from a ton of steel sells for $30,000, then if all markets are perfectly competitive, how many cars can be made from the last ton of steel used by a profit-maximizing firm?

A)1\3 car
B)1\2 car
C)1 car
D)1.5 cars

Question 64

Land rents account for nearly

A)5 percent of U.S. income.
B)15 percent of U.S. income.
C)25 percent of U.S. income.
D)50 percent of U.S. income.

Question 65

The marginal productivity theory is irrelevant to organizing production in a socialist society.

Question 66

Marginal productivity analysis shows that a drop in the price of the product will cause input use to

A)increase.
B)decrease.
C)stay the same.
D)The information is insufficient to provide an answer.

Question 67

The theory of factor pricing uses supply-demand analysis.

Question 68

If factor markets are competitive, a profit maximizing firm should buy inputs where MRP is

A)inelastic.
B)elastic.
C)equal to the output price.
D)equal to the input price.

Question 69

What involves taking the risks that are necessary to seek out business opportunities?

A)Invention
B)Benchmarking
C)Averaging
D)Entrepreneurship

Question 70

The marginal productivity theory of distribution holds that

A)each factor is paid what it deserves.
B)the owner of each factor is paid the amount that the factor contributes to earnings.
C)each factor's income depends on how hard it works.
D)each factor receives an equal share of the revenue from production.

Question 71

Which factor of production receives the greatest share of the U.S. national income?

A)Land
B)Labor
C)Capital
D)Entrepreneurship

Question 72

Factor demand is based on

A)marginal productivity theory.
B)the law of supply.
C)game theory.
D)the principle of economies of scale.

Question 73

According to the principle of marginal productivity, if

A)the product price is less than MRP, the firm is using too little of the input.
B)the price of an input rises, the quantity demanded of the input will increase.
C)MRP is greater than product price, the firm should reduce the use of the input.
D)price of the input equals MRP, the firm is maximizing profit.

Question 74

In the U.S. economy, labor receives

A)the lowest share of income.
B)the highest share of income.
C)about a quarter of income.
D)about three-quarters of income.

Question 75

Interest payments account for about ___ percent of U.S. national income.

A)1
B)3
C)9
D)12

Question 76

A worker can always build a chair in four hours. If a chair sells for $40 in a perfectly competitive market, then the equilibrium wage per hour in a perfectly competitive labor market is

A)$4.
B)$10.
C)$40.
D)$160.

Question 77

Which of the following is not true about marginal revenue product?

A)It shows the value of the marginal physical product.
B)It is the marginal physical product times price of the product under perfect competition.
C)It is the marginal physical product times marginal revenue.
D)It shows the marginal costs of inputs.

Question 78

The marginal productivity principle implies that

A)quantity demanded of an input normally declines as the input price falls.
B)at equilibrium, profit from the last unit of input will be zero.
C)for maximizing profit, marginal revenue product should be greater than price.
D)marginal productivity of inputs increase when price of inputs increase.

Question 79

The demand curve for capital is

A)its entire marginal physical product curve.
B)the downward-sloping portion of its marginal physical product curve.
C)its entire marginal revenue product curve.
D)the downward-sloping portion of its marginal revenue product curve.

Question 80

One major fault with factor pricing analysis is that marginal productivity theory merely attempts to justify the income distribution that the capitalist system yields.