Question 1

An increase in technology that enhances labor productivity will likely result in:
A) a decrease in labor employment and an increase in the wage rate.
B) an increase in labor employment and an increase in the wage rate.
C) a decrease in labor employment and a decrease in the wage rate.
D) an increase in labor employment and a decrease in the wage rate.
E) employers using less labor and more capital while the wage effect is unknown.

Accepted Answer

An increase in technology that enhances labor productivity typically leads to an increase in labor employment because firms can produce more with the same amount of labor, potentially expanding their operations. Additionally, as labor becomes more productive, the value of labor increases, which can lead to an increase in the wage rate.

Question 2

A firm should hire more labor when the marginal revenue product of labor:
A) equals the wage rate.
B) exceeds the wage rate.
C) is less than the wage rate.
D) Any of these can be true.
E) None of these are true.

Accepted Answer

When the marginal revenue product of labor exceeds the wage rate, it means that each additional unit of labor is generating more revenue than what the firm is paying for the labor. Therefore, hiring more labor will increase the firm's profit.

Question 3

When compared to the demand curve for only one variable input, the demand curve for a factor input when several inputs are variable is:
A) less elastic.
B) more elastic.
C) vertical.
D) horizontal.

Accepted Answer

When several inputs are variable, firms have more flexibility to substitute between inputs in response to changes in input prices, making the demand curve for a factor input more elastic.

Question 4

Scenario 14.1: You are the manager of a firm producing green chalk. The marginal product of labor is: MPS1U1B1LS1U1B0 = 24LS1U1P1-1/2S1S1P0 Suppose that the firm is a competitor in the green chalk market. The price of green chalk is $1 per unit. Further suppose that the firm is a competitor in the labor market. The wage rate is $12.00 per hour. -Given the information in Scenario 14.1, what is the marginal revenue product of labor? A) 0.5L^-1/2 B) 2L^-1/2 C) 12L^-1/2 D) 24L^-1/2

Accepted Answer

The marginal revenue product of labor (MRP) is calculated by multiplying the marginal product of labor (MPL) by the price of the product. Given MPL = 24L^-1/2 and the price of green chalk is $1, MRP = 24L^-1/2.

Question 5

In the competitive output market for good Q, the marginal revenue product for an input X can be expressed as: A) MP_X / TR_Q. B) MP_Q MR_X. C) AP_X MR_Q. D) MP_X ∗ P_Q.

Accepted Answer

The marginal revenue product (MRP) of an input in the production of a good is the additional revenue a firm earns by employing one more unit of that input, holding all other factors constant. It can be calculated as the marginal product of the input (MPS) times the price of the output (PS), reflecting the additional output produced by the last unit of input multiplied by the market price of the output. The symbols in the choices seem to be placeholders or errors, but the correct formula conceptually matches choice D, where MPS (marginal product of the input X) is multiplied by PS (price of the output Q), indicating the additional revenue generated from selling the extra output produced by the additional input.

Question 6

If an individual's labor supply curve is backward bending, then:
A) the income effect associated with a higher wage is greater than the substitution effect.
B) the substitution effect associated with a higher wage is greater than the income effect.
C) the substitution effect associated with a higher wage encourages more leisure.
D) A and C
E) B and C

Accepted Answer

The backward bending labor supply curve occurs when the income effect of a higher wage (leading to a desire for more leisure, thus working less) outweighs the substitution effect (the tendency to work more because leisure becomes relatively more expensive).

Question 7

If the market for labor is perfectly competitive, the profit maximizing level of labor occurs where: A) MRP_L < W (the wage). B) MRP_L = P (the output price). C) MRP_L just exceeds W. D) MRP_L = W. E) none of the above

Accepted Answer

In a perfectly competitive labor market, the marginal revenue product of labor (MRPL) is equal to the wage rate (W) because each worker is a price taker and the firm cannot influence the wage rate. Therefore, the profit maximizing level of labor occurs where MRPL = W, which is equivalent to choice D.

Question 8

If leisure is a normal good, then the income effect of a decrease in wage will:
A) decrease the number of hours worked.
B) increase the number of hours worked.
C) decrease the number of leisure hours.
D) increase the sum of leisure plus hours worked.

Accepted Answer

If leisure is a normal good, a decrease in wage reduces income, leading individuals to work more hours to maintain their income level, thus increasing the number of hours worked.

Question 9

A firm purchases a factor of production in a competitive market. At the current purchase rate the MRP of the factor is greater than the marginal expenditure for the factor. Thus, the firm:
A) can increase profit by reducing the employment of the factor of production.
B) is now maximizing profit.
C) should not use this factor of production because it has no potential in generating a profit.
D) can increase profit by expanding the employment of the factor of production.

Accepted Answer

Since the MRP (Marginal Revenue Product) is greater than the marginal expenditure for the factor, this implies that the firm is still gaining additional revenue by using more of the factor of production. Therefore, the firm can increase its profit by expanding the employment of the factor of production.

Question 10

If only one firm in an industry could take advantage of a reduced wage and all other firms continue paying the old wage, how would one best describe the one firm's reaction to this reduced wage assuming labor is the only variable input? The marginal revenue product of labor curve:
A) would remain unchanged, and the firm would hire more labor at the lower wage.
B) shifts to the left, and the firm hires more labor at the lower wage on the new curve.
C) shifts to the right, and the firm hires more labor at the lower wage on the new curve.
D) shifts to the left, and the firm hires less labor at the lower wage on the new curve.
E) shifts to the right, and the firm hires less labor at the lower wage on the new curve.

Accepted Answer

The marginal revenue product of labor curve represents the additional revenue a firm generates from hiring an additional unit of labor. If a firm can pay a reduced wage while all other conditions remain the same, its cost of production decreases, but the productivity and revenue generated by each worker do not change. Therefore, the marginal revenue product of labor curve stays the same, but the firm would hire more labor because it can now do so at a lower cost, increasing its profit margin.

Question 11

Scenario 14.1:
You are the manager of a firm producing green chalk. The marginal product of labor is:
MPS1U1B1LS1U1B0 = 24LS1U1P1-1/2S1S1P0
Suppose that the firm is a competitor in the green chalk market. The price of green chalk is $1 per unit. Further suppose that the firm is a competitor in the labor market. The wage rate is $12.00 per hour.
-Given the information in Scenario 14.1, how much labor will be hired to maximize profit?
A) 1/16
B) 1/2
C) 1
D) 4

Accepted Answer

To maximize profit, the firm will hire labor until the value of the marginal product of labor (VMPL) equals the wage rate. The VMPL is the marginal product of labor (MPL) times the price of the product. Given MPL = 24L^(-1/2) and the price of green chalk is $1, VMPL = $24L^(-1/2). Setting VMPL equal to the wage rate of $12 and solving for L gives L = (24/12)^2 = 4.

Question 12

Under what circumstances are the marginal expenditure for an input and the average expenditure always equal? Where there is a:
A) competitive buyer.
B) competitive seller.
C) monopoly buyer.
D) monopoly seller.

Accepted Answer

Marginal expenditure for an input and the average expenditure are always equal in a competitive market. In a competitive market, the buyers compete with each other, and the price for an input is determined by the market forces of supply and demand. Therefore, each buyer pays the same price for the input, and their marginal expenditure is equal to the average expenditure. However, in a monopoly market, the seller has control over the price, and the buyer may have to pay a higher price for the input than the average expenditure, resulting in a difference between marginal and average expenditure.

Question 13

When the factor market is purely competitive, the firm's average expenditure curve for a factor of production is:
A) upward sloping and to the right of the marginal expenditure curve.
B) downward sloping and to the right of the marginal expenditure curve.
C) identical to the marginal expenditure curve.
D) downward sloping and to the left of the marginal expenditure curve.

Accepted Answer

In a purely competitive factor market, the firm is a price taker and the price of the factor is determined by the market. Therefore, both the average expenditure curve and the marginal expenditure curve are horizontal and identical. This means that the firm pays the same price for each additional unit of the factor they hire, and the total expenditure increases in a straight line.

Question 14

The substitution effect of a decrease in the wage will:
A) decrease leisure, regardless of whether leisure is a normal or inferior good.
B) increase leisure, regardless of whether leisure is a normal or inferior good.
C) increase leisure only if leisure is a normal good.
D) decrease leisure only if leisure is a normal good.

Accepted Answer

The substitution effect of a decrease in wages will decrease the opportunity cost of leisure and increase the incentive to work. Therefore, individuals will substitute leisure with work and increase the supply of labor. This effect is irrespective of whether leisure is a normal or inferior good. Thus, option B is the correct answer.

Question 15

Figure 14.1.1
-Refer to Figure 14.1.1 above. The figure shows the firm's demand curve with variable capital. The shift in the marginal revenue product curve is caused by:
A) an increase in capital.
B) a decrease in capital.
C) an increase in the wage rate.
D) a decrease in the wage rate.

Accepted Answer

The answer of  Figure 14.1.1
-Refer to Figure 14.1.1 above....

Question 16

What can account for the negative slope of the marginal revenue product curve?
A) Diminishing marginal utility
B) Diminishing marginal returns
C) Monopsony power
D) All workers eventually begin slacking.
E) none of the above

Accepted Answer

The negative slope of the marginal revenue product curve is primarily due to the law of diminishing marginal returns. As a firm hires more and more workers, at some point each additional worker will add less and less to total output, decreasing the marginal revenue product of labor.

Question 17

The marginal revenue product of labor is equal to: A) MP_L / P. B) MP_L ∗ MR. C) MP_L / MR. D) MR / MP_L.

Accepted Answer

The marginal revenue product of labor (MRPL) is calculated by multiplying the marginal product of labor (MPL) by the marginal revenue (MR). This is represented in option B as MP_L * MR, where MP_L seems to be a placeholder for MPL.

Question 18

The marginal revenue product can be expressed as the:
A) additional revenue received from selling one more unit of product.
B) increment to revenue received from one additional unit of input hired.
C) marginal physical product of an input times the average revenue received from the sale of the product.
D) average physical product of the input times the marginal revenue received from the sale of the final product.

Accepted Answer

The marginal revenue product (MRP) is the additional revenue generated by one more unit of input hired. Therefore, the best choice is B. Option A is the definition of marginal revenue, not MRP. Option C is incorrect as it combines the marginal physical product with average revenue instead of marginal revenue. Option D is incorrect as it multiplies the average physical product with marginal revenue instead of marginal revenue product.

Question 19

Assume that labor and capital are complements in production and that the wage declines. Which of the following statements best describes the adjustment in the use of labor? A) Adjustments in labor use are not influenced by adjustments in capital use. B) The MRP_L curve shifts downward in this case. C) More labor is used both because of the reduced wage and increased use of capital. D) Changes in labor use are indeterminate because the reduced wage and reduced use of capital have opposite influences on the use of labor.

Accepted Answer

Since labor and capital are complements, the reduced wage leads to increased use of labor and increased use of capital, as the two are used together in production. Therefore, more labor is used due to the reduced wage and increased use of capital.

Question 20

Figure 14.1.1
-Other things being equal, the marginal revenue product (MRP) curve for a competitive seller:
A) lies below the MRP curve for a monopolist.
B) is identical to the MRP curve for a monopolist.
C) lies above the MRP curve for a monopolist.
D) is upward sloping whereas a monopolist has a downward sloping MRP curve.

Accepted Answer

In a perfectly competitive market, firms are price-takers and the price is equal to the marginal revenue. Therefore, the MRP curve for a competitive seller is the same as the demand curve for their product. On the other hand, in a monopolistic market, the firm has market power and can influence the price by reducing output. This results in a downward sloping MRP curve. As a result, the MRP curve for a competitive seller lies above the MRP curve for a monopolist.

Quiz 14: Markets for Factor Inputs

An increase in technology that enhances labor productivity will likely result in:

A firm should hire more labor when the marginal revenue product of labor:

When compared to the demand curve for only one variable input, the demand curve for a factor input when several inputs are variable is:

In the competitive output market for good Q, the marginal revenue product for an input X can be expressed as:

If an individual's labor supply curve is backward bending, then:

If the market for labor is perfectly competitive, the profit maximizing level of labor occurs where:

If leisure is a normal good, then the income effect of a decrease in wage will:

A firm purchases a factor of production in a competitive market. At the current purchase rate the MRP of the factor is greater than the marginal expenditure for the factor. Thus, the firm:

If only one firm in an industry could take advantage of a reduced wage and all other firms continue paying the old wage, how would one best describe the one firm's reaction to this reduced wage assuming labor is the only variable input? The marginal revenue product of labor curve:

Under what circumstances are the marginal expenditure for an input and the average expenditure always equal? Where there is a:

When the factor market is purely competitive, the firm's average expenditure curve for a factor of production is:

The substitution effect of a decrease in the wage will:

Figure 14.1.1 -Refer to Figure 14.1.1 above. The figure shows the firm's demand curve with variable capital. The shift in the marginal revenue product curve is caused by:

What can account for the negative slope of the marginal revenue product curve?

The marginal revenue product of labor is equal to:

The marginal revenue product can be expressed as the:

Assume that labor and capital are complements in production and that the wage declines. Which of the following statements best describes the adjustment in the use of labor?

Figure 14.1.1 -Other things being equal, the marginal revenue product (MRP) curve for a competitive seller: