Deck 15: Factor Markets

Question 1

If a firm buys its labor in a competitive market,then a short-run increase in the price of the firm's output will cause the firm to

A) offer a higher wage.
B) hire fewer workers.
C) hire more workers.
D) offer a lower wage.

Answer 1

C

Question 2

A change in the wage causes a shift in the supply curve for labor and a

A) shift along the demand curve for labor.
B) shift in the demand curve for labor.
C) rotation in the demand curve for labor.
D) It cannot be determined by the information provided.

Answer 2

A

Question 3

Suppose the marginal product of labor equals 1/L.If the wage is $1 per unit of labor,what is the short-run effect on the firm's labor demand if the price of output were to double?

A) The firm will demand half as much labor.
B) The firm will demand twice as much labor.
C) The firm will demand the same quantity of labor.
D) There is not enough information to determine.

Answer 3

B

Question 4

In the short run,the competitive firm will hire more labor if

A) the wage rate increases.
B) the price the firm receives for the output increases.
C) the price the firm receives for the output decreases.
D) a specific tax is imposed on the output.

Question 5

The amount of labor a firm employs depends on

A) the market wage.
B) the market price for the good produced.
C) Both A and B.
D) None of the above.

Question 6

A firm's demand for labor is downward sloping because of

A) diminishing marginal productivity of labor.
B) diminishing marginal utility.
C) price pressure.
D) workers' increased willingness to work for higher wages.

Question 7

The above figure shows a competitive firm's demand for labor assuming that the firm's output sells for $1 per unit.If the wage is $5 per hour,a ten cent specific tax on the good sold by the firm will cause the firm to

A) demand less labor.
B) demand more labor.
C) offer its workers only $4.90 per hour.
D) hire 0 units of labor per hour.

Question 8

The profit maximizing condition for a firm selling its output in a competitive market and buying its resources in a competitive market is

A) P = MC only.
B) MRP = wage only.
C) Both A and B.
D) Neither A nor B.

Question 9

In the short run,which one of the following causes a competitive firm to hire more labor?

A) an increase in wage rate
B) an increase in the output price
C) a specific tax imposed on the firm's output
D) a decrease in the output price

Question 10

If a firm is a price taker in both the labor market and the output market,it will

A) earn zero economic profit in the short run.
B) hire labor until the marginal product of labor equals zero.
C) hire labor until the marginal revenue product equals the output price.
D) hire labor until the marginal revenue product equals the wage rate.

Question 11

If a competitive firm faces a competitive labor market,it will hire labor until

A) w = p.
B) w = MPL.
C) w = MPL ∗ p.
D) MPL = 0.

Question 12

The long-run labor demand curve is relatively flatter than the short-run labor demand curve because,in the short run,

A) the wage rate is fixed.
B) the firm cannot vary the amount of capital used.
C) the firm is a price taker.
D) All of the above.

Question 13

The increase in total revenue due to increasing the amount of labor employed by one unit is called the

A) Marginal Product.
B) Marginal Revenue Product.
C) Average Revenue Product.
D) Total Revenue Product.

Question 14

The above figure shows a competitive firm's demand for labor assuming that the firm's output sells for $1 per unit.If the wage is $5 per hour,the firm will hire

A) 10 units of labor per hour.
B) 5 units of labor per hour.
C) 2.5 units of labor per hour.
D) 0 units of labor per hour.

Question 15

In a perfectly competitive resource market the labor supply curve facing the single firm is

A) vertical.
B) horizontal.
C) downward-sloping.
D) upward-sloping.

Question 16

The demand for an input used in a fixed proportions technology

A) is identical to the demand for the other inputs.
B) is greater than the demand for the end product itself.
C) lies below the demand for the end product itself.
D) is the same as the demand for the end product itself.

Question 17

In the short run,a competitive firm has a marginal product of labor,MPL = 5L^-0.5.The output price is $10 per unit and the wage is $7 per hour.The short-run labor demand curve for the firm is

A) 5L^-0.5.
B) 15L^-0.5.
C) 35L^-0.5.
D) 50L^-0.5.

Question 18

Suppose the marginal product of labor equals 1/L.If the firm can sell its output for $10 per unit,and the wage is $1 per unit,how many units of labor will the firm hire?

A) 0
B) 1
C) 10
D) 100

Question 19

If wages for a certain type of labor were higher in one market than in another,then

A) the differential would exist into the long run.
B) labor would move from the high wage market to the low wage market until wages were equal.
C) labor would move from the low wage market to the high wage market until wages were equal.
D) firms would not be acting as profit maximizers.

Question 20

In a perfectly competitive resource market the Marginal Revenue Product Curve is

A) vertical.
B) horizontal.
C) downward-sloping.
D) upward-sloping.

Question 21

If the price of a competitive firm's output increases,the firm responds in the short run by demanding more labor.

Question 22

Explain why a decrease in an input price causes less of an increase in the quantity demanded of the factor if we assumed that product price remained constant.

Question 23

Suppose there are profit maximizing,competitive buyers and sellers of labor in an industry,and the amount of capital is fixed for each firm.Explain under what condition the output price will equal the wage rate.

Question 24

If workers suddenly decide to value more their leisure time than before,this

A) shifts the labor supply curve to the left, resulting in a wage increase and less workers hired.
B) shifts the labor supply curve to the right, resulting in a wage increase and less workers hired.
C) shifts the labor supply curve to the left, resulting in a wage decrease and less workers hired.
D) shifts the labor supply curve to the right, resulting in a wage increase and more workers hired.

Question 25

For a monopoly,the value of the next worker equals

A) MR ∗ MPL.
B) p ∗ MPL.
C) MPL.
D) w/MPL.

Question 26

A firm faces competitive markets for its inputs and its output.Its marginal revenue product of labor

A) is increasing in the output price.
B) is decreasing in the output price.
C) is independent of the output price.
D) has an inverted U-shape.

Question 27

During the Black Plague,capital became worthless.What can explain this?

A) Capital's marginal product fell because there was less labor.
B) Capitalists died off at a greater rate than the workers.
C) Capital's marginal product increased but the marginal product of labor decreased.
D) Workers forgot how to use the capital.

Question 28

XYZ Co.operates in a competitive market.Its production function is q = L^αK^β.The exponents,α and β,are both less than 1.The firm's capital is fixed,and it takes the wage and price as given.Derive the firm's short-run demand for labor as a function of K,w,and p.How does the firm react to an increase in the wage rate?

Question 29

After Hurricane Katrina destroyed much of the infrastructure of the United States Gulf Coast,

A) labor became more valuable.
B) labor became less valuable because of the capital that had been destroyed.
C) labor became less valuable because FEMA's response wasn't timely.
D) labor became more valuable because of the rebuilding effort.

Question 30

How does a competitive firm's demand for labor react to a specific tax on each unit of output it sells?

Question 31

Why is the short-run demand curve for labor downward sloping?

Question 32

Which of the following labor markets is more likely to be competitive?

A) Receptionists
B) Singers
C) Soccer players
D) Sculptors

Question 33

A monopoly's demand curve for labor

A) is below that of a competitive market.
B) is the same as that of a competitive market.
C) is above that of a competitive market.
D) equals p ∗ MPL.

Question 34

A firm faces competitive markets for its inputs and its output.At the profit maximizing level of output,its marginal cost is $10 and the wage paid is $2.If the MPL = L^-0.5,how many workers will be hired by the firm?

A) 35
B) 40
C) 25
D) 5

Question 35

XYZ Co.operates in a competitive market.Its marginal product of labor is 1/L,and it takes the wage and price as given.Derive the firm's short-run demand for labor as a function of w and p.How much labor will the firm hire if w = 2 and p = 10?

Question 36

If a firm pays its workers $10 per hour,the marginal product of labor is 5 units per hour,and the price of the firm's product is $15 per unit,what is the price elasticity of demand facing the firm?

A) -1.15
B) -2.15
C) -1.0
D) -3.56

Question 37

For a competitive firm the marginal revenue product of labor is usually downward sloping.

Question 38

To derive the labor market demand curve,the labor demand curves for each firm in the output market of interest are summed.

Question 39

If the competitive firm maximizes profit by selecting labor rather than output,it will earn greater economic profit.

Question 40

A firm uses labor and capital in its production process,and it faces competitive markets for its inputs and output.The firm's long-run labor demand curve

A) intersects with the short-run labor demand curve in several points.
B) is exactly identical to its short-run labor demand curve.
C) is steeper than its short-run labor demand curve.
D) is flatter than its short-run labor demand curve.

Question 41

Monopolization of the labor market restricts output because

A) fewer workers offer their services.
B) the higher wage raises the firm's marginal cost.
C) monopolized workers are less productive.
D) a monopolized labor market means there is also a monopolized output market.

Question 42

For a monopoly,the value of the next worker equals

A) MR ∗ MPL.
B) (price + the effect of increased output on price) ∗ MPL.
C) P(1+1/e) * MPL
D) All of the above.

Question 43

Firm A is a monopoly.The demand for its output is p = 90 - Q.Production is such that Q = L.Firm A hires only unionized labor.The marginal cost to the union is $10 per unit of labor.The union will sell

A) 20 units of labor at a wage of $10.
B) 20 units of labor at a wage of $40.
C) 20 units of labor at a wage of $50.
D) 20 units of labor at a wage of $70.

Question 44

If a firm has market power in the output market but buys labor in a competitive market,it will hire the same quantity of labor that a competitive firm will.

Question 45

If an upstream monopoly and a downstream monopoly vertically integrate into a profit-maximizing monopoly,then the total amount of deadweight loss in the industry

A) will increase.
B) will decrease.
C) will remain unchanged.
D) cannot be determined.

Question 46

If a monopolist in the output market purchases its monopoly supplier of labor,consumers benefit.

Question 47

A monopolist faces a market demand curve with a constant elasticity of -2.The monopoly's production function is Q = 4L and its output price is given by p.What is the monopoly's marginal revenue product of labor function?

A) MRP_L = 2p
B) MRP_L = 4p
C) MRP_L = 10 - 2p
D) MRP_L = 5 + 3.5p

Question 48

Monopolization of either the labor market or the output market results in

A) higher wages than when both are competitive.
B) a higher output price than when both are competitive.
C) a higher level of output than when both are competitive.
D) All of the above.

Question 49

The demand for a monopoly's output is p = 200 - Q.The monopoly's production function is Q = 2L,and the market wage is $4.How many units of labor will the monopolist employ at its profit maximization level of output?

A) L = 49.5
B) L = 4623
C) L = 198
D) L = 10

Question 50

Monopolies in successive markets result in

A) a double markup for consumers.
B) more output than if the input market is competitive.
C) a lower output price than if the input market is competitive.
D) All of the above.

Question 51

Monopolies tend to

A) hire more labor than duopolists or competitive firms, hence they are inefficient.
B) hire more labor than competitive firms but less than duopolists.
C) hire less labor than competitive firms because they produce at an inefficient level.
D) hire more labor because they produce at an inefficient level.

Question 52

The demand for a monopoly's output is p = 50 - Q.The monopoly's marginal cost is $4 and the market wage is $2.How many units of labor are demanded by the monopoly?

A) L = 46
B) L = 23
C) L = 0
D) L = 10

Question 53

The demand for a monopoly's output is p = 100 - Q.The firm's production function is Q = 2L.Which of the following is the firm's demand for labor?

A) w = 200 - 8L
B) w = 200 - 4L
C) w = 100 - L
D) w = 2L

Question 54

Explain why baseball ticket prices may increase when a team pays a new player a large salary,but will remain unchanged when a current player gets a salary increase.

Question 55

In a market where one unit of labor produces one unit of output,consumers prefer

A) a competitive labor market and a monopoly output market.
B) a competitive output market and a monopoly labor market.
C) a monopoly output market and a monopoly labor market.
D) None of the above-they are indifferent between A and B.

Question 56

Assume that the market demand for a good is p = 100 - Q.Assume that the marginal product of labor is 1 and the firm can get all the labor it needs at a wage equal to 5.Compare the quantity of labor hired if the output market is competitive with the quantity hired if the output market is a monopoly.

Question 57

If the labor market is competitive,a monopoly output market will result in

A) a lower wage than that of a competitive output market.
B) a higher wage than that of a competitive output market.
C) less labor hired than in a competitive output market.
D) more labor hired than in a competitive output market.

Question 58

Firm A is a monopoly.The demand for its output is p = 90 - Q.Production is such that Q = L.Firm A hires labor in a competitive market where the wage is $10.Firm A will hire

A) 10 units of labor.
B) 20 units of labor.
C) 30 units of labor.
D) 40 units of labor.

Question 59

Monopolization of both the labor market and the output market results in

A) higher wages than when both are competitive.
B) a higher output price than when both are competitive.
C) a lower level of output than when both are competitive.
D) All of the above.

Question 60

Suppose the labor market is competitive,the supply curve of labor is upward sloping,and the amount of capital is fixed.If the output market changes from a competitive market to a monopoly,what is the effect on its demand for labor? Explain.

Question 61

A monopsonist faces an upward-sloping labor supply curve.This means that his marginal expenditures on labor are

A) greater than the wage.
B) equal to the wage plus the increase in the wage resulting from hiring one more unit of labor hired.
C) greater than the wage because hiring more workers requires to pay all workers more.
D) All of the above.

Question 62

The steeper the labor supply curve,

A) the higher the wage the monopsonist pays.
B) the lower the wage the monopsonist pays.
C) the smaller the difference between the wage and the marginal expenditure on labor.
D) the better off workers are.

Question 63

Suppose n identical Cournot firms purchase labor in a competitive labor market.How is the market demand for labor affected by the number of firms in the market?

Question 64

Relative to a competitive labor market,monopsony

A) is also efficient.
B) creates a deadweight loss because it pays an excessive wage.
C) creates a deadweight loss because the wage is below the marginal revenue product of labor.
D) creates a deadweight loss because the wage is above the marginal revenue product of labor.

Question 65

Universities are able to act as monopsonists in the market for professors because

A) a university usually does not consider hiring faculty members from another institution.
B) faculty members usually have to move to a different city when changing universities.
C) students like all of their professors.
D) senior faculty members are willing to move to a new university at any cost.

Question 66

If the supply of labor to a monopsonist is everywhere unit elastic,then the wage will equal

A) the marginal expenditure.
B) one-half of the marginal expenditure.
C) the marginal revenue product of labor.
D) one.

Question 67

The gap between the value a monopsony places on the last worker hired and the wage paid will increase when

A) the supply curve becomes more elastic at the optimum.
B) the supply curve becomes less elastic at the optimum.
C) the supply curve becomes horizontal.
D) the value of the last unit of labor hired is greater than the cost.

Question 68

Explain why consumers benefit from a merger between a monopoly producer and its monopoly supplier of labor.

Question 69

For a monopsonist,the labor supply curve is upward sloping because

A) the monopsonist must compete with other industries for that labor.
B) the monopsonist requires that the laborers are highly skilled.
C) the monopsonist is the only buyer in that labor market.
D) the monopsonist restricts the supply of labor.

Question 70

Under monopsony,the wage rate

A) equals the marginal product of labor.
B) equals the marginal revenue product of labor.
C) is less than the marginal revenue product of labor.
D) is greater than it would be under perfect competition.

Question 71

Which of the following would be most able to act like a monopsonist?

A) a hospital in a small isolated town
B) a hospital in a very big city
C) a law firm in Washington, D.C.
D) a computer software firm in Silicon Valley

Question 72

For the monopsonist,marginal expenditure is greater than the wage rate because the monopsonist

A) pays a wage higher than that paid in a competitive market.
B) chooses the perfectly competitive quantity of labor.
C) must increase the wage to all units of labor to attract more units of labor.
D) must take the wage as given by the market.

Question 73

If a firm takes the wage as given,then the supply curve of labor to that firm is

A) horizontal.
B) vertical.
C) upward sloping.
D) downward sloping.

Question 74

If a firm takes the wage as given,then the firm's marginal expenditure on labor curve is

A) above the labor supply curve.
B) below the labor supply curve.
C) the same as the labor supply curve.
D) upward sloping.

Question 75

If the supply of labor to a monopsonist is everywhere unit elastic,and the marginal expenditure equals $1,then the wage will equal

A) $0.50.
B) $0.75.
C) $1.00.
D) $2.00.

Question 76

A monopsonist purchaser of labor that could negotiate a different wage for each worker could

A) purchase less labor than a regular monopsonist.
B) purchase more labor than a regular monopsonist.
C) rotate the marginal expenditure curve to the left.
D) shift the marginal expenditure curve to the left.

Question 77

If workers are homogeneous and face a monopsonist,

A) they are likely to want to form a union.
B) they are likely to want to negotiate one-on-one with their employer.
C) it is likely that half will want to form a union, half will not.
D) they are likely to move to another town.

Question 78

If a firm buys some labor in a competitive market and some labor as a monopsonist,the firm is most likely to

A) pay the same wage to both types of labor.
B) pay a lower wage to the labor purchased in the competitive market.
C) pay a higher wage to the labor purchased in the competitive market.
D) not exercise any of its monopsony power.

Question 79

Because the labor supply curve for a monopsonist is upward sloping,the monopsonist

A) hires zero units of labor.
B) chooses the perfectly competitive quantity of labor.
C) must increase the wage to attract more units of labor.
D) must take the wage as given by the market.

Question 80

The difference between the marginal expenditure and the wage is greater when the supply curve of labor is

A) less elastic at the monopsony optimum.
B) more elastic at the monopsony optimum.
C) more elastic than the demand curve.
D) The difference does not depend on any elasticity.