Question 1

Consider the following production and cost schedule for a firm. $$\begin{array}{l}
\begin{array} { | l | l | l | l | } 
\hline \begin{array} { l } 
\text { Total Number of } \
\text { Units of the } \
\text { Factor }
\end{array} & \begin{array} { l } 
\text { Total Number of } \
\text { Units of Output }
\end{array} & \begin{array} { l } 
\text { Price per Unit } \
\text { of Output }
\end{array} & \begin{array} { l } 
\text { Total Cost } \
\text { of Production }
\end{array} \
\hline 2 & 12 & \$ 10 & \$ 50 \
\hline 3 & 20 & \$ 9 & \$ 55 \
\hline 4 & 26 & \$ 8 & \$ 60 \
\hline 5 & 30 & \$ 7 & \$ 65 \
\hline 6 & 32 & \$ 6 & \$ 70 \
\hline 7 & 32 & \$ 5 & \$ 75 \
\hline
\end{array}\
\text { TABLE 13- } 3
\end{array}$$
-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) $11.00.
C) $2.00.
D) - $11.00.
E) $7.50.

Accepted Answer

The total revenue when hiring the 4th unit is 26 units * $8 = $208. The total revenue when hiring the 5th unit is 30 units * $7 = $210. The increase in total revenue is $210 - $208 = $2.00.

Question 2

If at a particular wage rate in a competitive labour market the quantity demanded of labour is less than quantity supplied of labour, then
A) the demand curve for labour will shift to the right.
B) there will be a shortage of labour, thereby increasing the equilibrium wage rate.
C) the supply curve for labour will shift to the right.
D) some workers will begin to accept lower wages and induce employers to hire more workers.
E) a black market for labour will form, with firms offering workers very high wages.

Accepted Answer

When the quantity demanded of labour is less than the quantity supplied, there is a surplus of labour. To clear the surplus, some workers may accept lower wages, encouraging employers to hire more workers, moving towards equilibrium.

Question 3

The diagram below shows the MRP curve for a firm producing high school math textbooks. The factor of production being considered here is hours of labour.  FIGURE 13- 2
-Refer to Figure 13- 2. Suppose this firm initially has the marginal revenue product curve MRP1. One reason that the curve could shift to MRP3 is
A) an increase in the wage rate.
B) an increase in the marginal product of labour.
C) an increase in demand for the firm's output, math textbooks.
D) a decrease in the market price of math textbooks.
E) a decrease in the supply of labour.

Accepted Answer

D

Question 4

Suppose that the last unit of a factor of production employed has a marginal physical product of 12. The factor's price is $8, and the product's competitive market price is $6. This factor's marginal revenue product is
A) $96.
B) $72.
C) $6.
D) $36.
E) $48.

Accepted Answer

The answer of Suppose that the last unit of a...

Question 5

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

Accepted Answer

For a monopolist, marginal revenue decreases as output increases due to the downward-sloping demand curve, making the marginal revenue product curve steeper than the marginal product curve.

Question 6

Consider the following production and cost schedule for a firm. $$\begin{array}{l}
\begin{array} { | l | l | l | l | } 
\hline \begin{array} { l } 
\text { Total Number of } \
\text { Units of the } \
\text { Factor }
\end{array} & \begin{array} { l } 
\text { Total Number of } \
\text { Units of Output }
\end{array} & \begin{array} { l } 
\text { Price per Unit } \
\text { of Output }
\end{array} & \begin{array} { l } 
\text { Total Cost } \
\text { of Production }
\end{array} \
\hline 2 & 12 & \$ 10 & \$ 50 \
\hline 3 & 20 & \$ 9 & \$ 55 \
\hline 4 & 26 & \$ 8 & \$ 60 \
\hline 5 & 30 & \$ 7 & \$ 65 \
\hline 6 & 32 & \$ 6 & \$ 70 \
\hline 7 & 32 & \$ 5 & \$ 75 \
\hline
\end{array}\
\text { TABLE 13- } 3
\end{array}$$
-Refer to Table 13- 3. The marginal physical product of the 4th unit of the factor of production is
.
A) 6
B) 8
C) 30
D) 26
E) 4

Accepted Answer

The marginal physical product (MPP) is the additional output produced by using one more unit of the factor. For the 4th unit, MPP = Output at 4 units - Output at 3 units = 26 - 20 = 6.

Question 7

Median family income (pre- tax) in Canada in 2006 was closest to
A) $70 000.
B) $40 000.
C) $80 000.
D) $50 000.
E) $60 000.

Accepted Answer

Median family income (pre- tax) in Canada in 2006 was $69,600.

Question 8

Suppose the government decides, in the interest of "fairness", to impose a policy prohibiting factor- price differentials. The likely result would be
A) a horizontal factor supply curve.
B) a decrease in net factor demands.
C) a shortage of factors in uses with low net advantage.
D) equilibrium in factor markets.
E) an increase in factor mobility.

Accepted Answer

Prohibiting factor-price differentials means that all factors of production are paid the same wage or rental rate regardless of their productivity or scarcity. This leads to a situation where some of the factors of production are overpaid while others are underpaid. The net effect of this policy is that factors of production, which are overpaid, will be in excessive supply while factors, which are underpaid, will be in short supply. Thus, there will be a shortage of factors in uses with low net advantage.

Question 9

Consider the following production and cost schedule for a firm. $$\begin{array}{l}
\begin{array} { | l | l | l | l | } 
\hline \begin{array} { l } 
\text { Total Number of } \
\text { Units of the } \
\text { Factor }
\end{array} & \begin{array} { l } 
\text { Total Number of } \
\text { Units of Output }
\end{array} & \begin{array} { l } 
\text { Price per Unit } \
\text { of Output }
\end{array} & \begin{array} { l } 
\text { Total Cost } \
\text { of Production }
\end{array} \
\hline 2 & 12 & \$ 10 & \$ 50 \
\hline 3 & 20 & \$ 9 & \$ 55 \
\hline 4 & 26 & \$ 8 & \$ 60 \
\hline 5 & 30 & \$ 7 & \$ 65 \
\hline 6 & 32 & \$ 6 & \$ 70 \
\hline 7 & 32 & \$ 5 & \$ 75 \
\hline
\end{array}\
\text { TABLE 13- } 3
\end{array}$$
-Refer to Table 13- 3. The total revenue obtained if the 5th unit of the factor of production is hired is
A) $192.
B) $210.
C) $160.
D) $180.
E) $202.

Accepted Answer

The answer of Consider the following production and cost schedule...

Question 10

The demand and supply curves shown below apply to a competitive market for a factor in the production of widgets.  FIGURE 13- 5
-Refer to Figure 13- 5. 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) economic rents to the initial 40 units of the factor will decrease.
B) total factor earnings will rise and economic rent to the 40th unit will be zero.
C) total factor earnings will decrease and economic rent to the initial 40 units will increase.
D) equilibrium will move toward point D and the factor price will rise.
E) equilibrium will move toward point C and economic rent to the initial 40 units will increase.

Accepted Answer

The answer of The demand and supply curves shown below...

Question 11

Suppose the following conditions existed in the Canadian labour market:
1) All labour is mobile and possesses the same skills.
2) Non- monetary advantages are the same across industries and occupations.
3) The demand conditions for labour are the same across industries. In this situation, we expect wage rates to
A) differ because of the desirability of the location of the job.
B) be the same in all industries.
C) be the same in most industries.
D) have equilibrium differentials.
E) be higher in some industries than in others.

Accepted Answer

In this situation, with all labour being mobile and possessing the same skills, non-monetary advantages being the same, and demand conditions for labour being the same across industries, there would be perfect competition in the labour market. This means that wage rates would be the same in all industries, as employers would have to pay the same wage to attract workers.

Question 12

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. $$\begin{array}{l}
\begin{array} { | l | l | l | l | } 
\hline \begin{array} { l } 
\text { Number of } \
\text { Hours Worked }
\end{array} & \begin{array} { l } 
\text { Number of } \
\text { Yo- Yos } \
\text { Produced }
\end{array} & \begin{array} { l } 
\text { Wage Rate } \
\text { per Hour } ( \$ )
\end{array} & \begin{array} { l } 
\text { Price of Yo- Yos } \
( \$ )
\end{array} \
\hline 10 & 60 & 10 & 5 \
\hline 11 & 70 & 10 & 5 \
\hline 12 & 78 & 10 & 5 \
\hline 13 & 84 & 10 & 5 \
\hline 14 & 88 & 10 & 5 \
\hline 15 & 90 & 10 & 5 \
\hline
\end{array}\
\text { TABLE 13- } 4
\end{array}$$
-Refer to Table 13- 4. What is the MRP for the 13th hour worked?
A) $5
B) $30
C) $78
D) $84
E) $10

Accepted Answer

The Marginal Revenue Product (MRP) is calculated by multiplying the marginal product of labor (additional yo-yos produced) by the price of the product. For the 13th hour, the additional yo-yos produced is 84 - 78 = 6. The price is $5, so MRP = 6 * $5 = $30.

Question 13

Steve Nash is a highly paid professional basketball player in the National Basketball Association. From the perspective of the whole NBA, Steve Nash's economic rent would be , while from the perspective of his individual team it would be .
A) close to his whole salary; very small
B) zero; close to his whole salary
C) very small; very large
D) zero; impossible to calculate
E) very large; close to his whole salary

Accepted Answer

Steve Nash's economic rent from the perspective of the whole NBA would be very small, as there are many other players who could fill his role. However, from the perspective of his individual team, his economic rent would be close to his whole salary, as he is a key player for them.

Question 14

FIGURE 13- 1
-Refer to Figure 13- 1. On the Lorenz curve shown in the diagram,
A) the richest 20 percent of families earn over 60 percent of total income.
B) the richest 20 percent of families earn almost 40 percent of total income.
C) the functional distribution of income is shown.
D) the poorest 20 percent of families earn almost 90 percent of total income.
E) perfect equality of income distribution occurs.

Accepted Answer

The Lorenz curve in the diagram shows that the richest 20 percent of families earn almost 40 percent of total income. This can be determined by looking at the point where the curve intersects with the 20 percent mark on the horizontal axis, and then following that point up to the curve to see the corresponding percentage of total income earned.

Question 15

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

Accepted Answer

The marginal revenue product of labour measures the increase in total revenue as a result of hiring an additional unit of labour. Therefore, the correct choice is C, which represents hiring one more unit of labour input. The other choices, A, B, D, and E, do not fully capture the definition of marginal revenue product of labour.

Question 16

Consider the following table for a firm. $$\begin{array}{l}
\begin{array} { | l | l | } 
\hline \begin{array} { l } 
\text { Total Number of } \
\text { Units of the } \
\text { Factor }
\end{array} & \begin{array} { l } 
\text { Total Number of } \
\text { Units of Output }
\end{array} \
\hline 2 & 100 \
\hline 3 & 110 \
\hline 4 & 128 \
\hline 5 & 148 \
\hline 6 & 162 \
\hline 7 & 170 \
\hline 8 & 166 \
\hline
\end{array}\
\text { TABLE 13- } 2
\end{array}$$
-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

Accepted Answer

The answer of Consider the following table for a firm....

Question 17

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

Accepted Answer

When the supply curve for a factor is perfectly elastic, the factor's payments are wholly transfer earnings, as the factor can be supplied at a constant price without any economic rent.

Question 18

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) heavily on public choice.
C) entirely on corporate advertising.
D) entirely on the cost of the factor.
E) heavily on government policy.

Accepted Answer

A factor of production is said to be "derived" because its demand is derived from the demand for the good or service it helps to make. For example, the demand for steel is derived from the demand for cars, buildings, and other products that use steel. Therefore, the demand for steel (factor of production) is dependent on the demand for cars, buildings, and other products (end products).

Question 19

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

Accepted Answer

If it becomes more difficult to substitute capital for labour in the production of cell phones, it means that the production process will become more labor-intensive. This will make the demand for labor more inelastic because firms will have fewer options to substitute labor with capital. This means that even if the wage rate increases, firms will be reluctant to reduce their demand for labor as they cannot substitute it easily. Therefore, the demand curve for labor in the industry will become more inelastic.

Question 20

If a firm is a perfect competitor in its product market, the marginal physical product of a factor multiplied by the product's price equals
A) marginal revenue.
B) total revenue.
C) marginal revenue product.
D) marginal cost.
E) marginal profit.

Accepted Answer

In a perfectly competitive market, the firm is a price taker, meaning that it can sell as much as it wants at the market price. Therefore, the marginal revenue of the firm is equal to the market price. In addition, since the firm is a perfect competitor, the marginal physical product of its factor of production is constant. This means that an additional unit of the factor will produce the same amount of output as the previous unit. Combining these two concepts, we can see that the marginal revenue product of the factor of production (which is equal to the marginal physical product multiplied by the product price) is equal to the market price. Therefore, the correct answer is C) marginal revenue product.

Quiz 13: How Factor Markets Work

If at a particular wage rate in a competitive labour market the quantity demanded of labour is less than quantity supplied of labour, then

Suppose that the last unit of a factor of production employed has a marginal physical product of 12. The factor's price is $8, and the product's competitive market price is $6. This factor's marginal revenue product is

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

Median family income (pre- tax) in Canada in 2006 was closest to

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

Steve Nash is a highly paid professional basketball player in the National Basketball Association. From the perspective of the whole NBA, Steve Nash's economic rent would be , while from the perspective of his individual team it would be .

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

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

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

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

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

If a firm is a perfect competitor in its product market, the marginal physical product of a factor multiplied by the product's price equals