Question 1

Which of the following would increase the demand for labor? (i)
A decrease in the output price
(ii)
An increase in the output price
(iii)
A labor-saving technological advance
(iv)
A labor-augmenting technological advance

Accepted Answer

An increase in the output price (ii) would increase the demand for labor as firms would have more revenue to expand production and hire more workers. Additionally, a labor-augmenting technological advance (iv) would also increase the demand for labor by making workers more productive and increasing the production capacity of the firm.

Question 2

For a competitive, profit-maximizing firm, the labor demand curve is the same as the

Accepted Answer

A competitive, profit-maximizing firm will hire labor until the marginal cost of hiring an additional unit of labor (i.e. the wage rate) equals the value of the marginal product of labor. Therefore, the labor demand curve for such a firm is the same as its value of marginal product curve.

Question 3

Which of the following events could decrease the demand for labor?

Accepted Answer

If the demand for the final product produced by labor decreases, firms will have less need for workers to produce the product, leading to a decrease in demand for labor. Alternatively, an increase in the number of migrant workers or a decrease in the supply of labor may actually increase the demand for labor due to an increase in the availability of workers. An increase in the marginal productivity of workers would lead to an increase in demand for labor.

Question 4

Competitive firms decide how much output to sell by producing output until the price of the good equals

Accepted Answer

Competitive firms decide how much output to sell by producing output until the price of the good equals marginal cost. This is because if the price is higher than the marginal cost, the firm can increase profits by producing more; if the price is lower than the marginal cost, the firm should produce less or exit the market to avoid losses. Marginal product and the value of marginal product are important concepts in production theory, but they do not directly determine the optimal level of output for a competitive firm. Marginal profit is simply the difference between marginal revenue and marginal cost, and it can be useful for determining whether a firm should continue producing in the short run, but it does not provide a direct guide for choosing the optimal level of output.

Question 5

Suppose that a new invention decreases the marginal productivity of labor, shifting labor demand to the left. Such an invention would be an example of

Accepted Answer

A labor-saving technology decreases the marginal productivity of labor by substituting capital or machinery for labor, which leads to a shift in labor demand to the left.

Question 6

If the demand curve for wedding cakes shifts to the right, then the value of the marginal product of labor for bakers will

Accepted Answer

An increase in demand for wedding cakes would lead to an increase in the quantity of cakes demanded, which would in turn lead to an increase in the number of bakers needed to produce those cakes. As the demand for bakers increases, their marginal product of labor would also increase, leading to a rise in its value.

Question 7

A pretzel-stand owner in Chicago hires workers to make hot pretzels and sell them to customers. If the firm is competitive in both the market for pretzels and in the market for pretzel-makers, then it has

Accepted Answer

This is a scenario of perfect competition, where no individual firm has any influence over price or wage. The market determines the price of pretzels and the wage rate for pretzel-makers. The pretzel-stand owner has no control over either of them.

Question 8

Which of the following is true at the level of output at which a competitive firm maximizes profit?

Accepted Answer

At the level of output where a competitive firm maximizes profit, price equals marginal cost. This is because if price is greater than marginal cost, the firm can increase profit by producing more. On the other hand, if price is less than marginal cost, the firm can increase profit by reducing production. Therefore, the profit-maximizing level of output occurs where price and marginal cost are equal. Options B and C are not relevant in this context as they relate to the determination of wages rather than the level of output that maximizes a firm's profit.

Question 9

Dan owns one of the many bakeries in New York City. Which of the following events will lead to an increase in Dan's demand for the services of bakers? (i)
The price of muffins increases. (Muffins are Dan's specialty.)
(ii)
Dan adds three new ovens to the kitchen area to help the bakers work faster.
(iii)
Local bakers form a union to protect themselves from low wages.

Accepted Answer

Only (i) and (ii) would lead to an increase in Dan's demand for the services of bakers. A price increase for Dan's specialty, muffins, would likely make them a more profitable item, leading Dan to want more bakers to bake more muffins to sell. Adding new ovens to the kitchen area would only increase Dan's ability to produce muffins, again leading to an increased demand for bakers. The formation of a union by local bakers is unlikely to impact Dan's demand for bakers, as it does not directly affect his bakery.

Question 10

When we focus on the firm as a supplier of a good or a service, we assume that the firm is a profit maximizer. When we focus on the firm as a demander of labor, we assume that the firm's objective is to

Accepted Answer

When a firm is a demander of labor, its objective is to maximize profit. This means that the firm will seek to employ the optimal number of workers at the lowest cost possible, while still being able to produce the desired level of output. This is the same objective as when the firm is a supplier of a good or a service, and it seeks to maximize revenue and minimize costs in order to maximize profit.

Question 11

Suppose that a new invention increases the marginal productivity of labor, shifting labor demand to the right. Such an invention would be an example of

Accepted Answer

Labor-augmenting technology is a type of technology that increases the marginal productivity of labor, which means it increases the output that can be produced by each unit of labor. This results in an increase in the demand for labor, which shifts the labor demand curve to the right. Therefore, a new invention that increases the marginal productivity of labor is an example of labor-augmenting technology.

Question 12

Competitive firms hire workers until the additional benefit they receive from the last worker hired is equal to (i)
The additional cost of that worker.
(ii)
The wage paid to that worker.
(iii)
The marginal product of that worker.

Accepted Answer

Competitive firms hire workers until the additional benefit, which is the marginal revenue product of labor, equals the additional cost, which is the wage paid to the worker.

Question 13

Which of the following best illustrates the concept of "derived demand?"

Accepted Answer

Derived demand refers to the demand for a factor of production or intermediate good that occurs as a result of the demand for another good or service. In this case, the demand for automobile production workers is derived from the automobile producer's decision to supply more cars.

Question 14

What causes the labor demand curve to shift? (i)
Changes in productivity
(ii)
Changes in wages
(iii)
Changes in output prices

Accepted Answer

Changes in productivity and changes in output prices can both cause the labor demand curve to shift. An increase in productivity will lead to an increase in demand for labor, while a decrease in productivity will lead to a decrease in demand for labor. Similarly, an increase in output prices will lead to an increase in demand for labor, as firms will want to produce more goods to take advantage of the higher prices, while a decrease in output prices will lead to a decrease in demand for labor. Changes in wages, however, affect the movement along the labor demand curve, rather than shifting the curve itself.

Question 15

John owns a number of hot dog stands in New York City. He hires workers to sell hot dogs at his stands. Which of the following events will lead to a decrease in John's demand for hot dog vendors?

Accepted Answer

The answer of John owns a number of hot dog...

Question 16

When a competitive firm maximizes profit, it will hire workers up to the point where the

Accepted Answer

When a competitive firm maximizes profit, it hires workers up to the point where the value of the marginal product of labor equals the wage. This is because the value of the marginal product of labor is the additional revenue generated by each additional unit of labor, and the wage is the cost of each additional unit of labor. Thus, maximizing profit requires hiring workers up to the point where the additional revenue generated by each worker is just equal to their cost. Choice D correctly reflects this principle.

Question 17

If the demand curve for economics textbooks shifts to the left, then the value of the marginal product of labor for economics textbook authors will

Accepted Answer

If the demand curve for economics textbooks shifts to the left, the quantity demanded for economics textbooks will decrease. This will decrease the revenue earned by publishers, and they will have to reduce their costs to maintain profits. As a result, the value of the marginal product of labor for economics textbook authors will fall.

Question 18

Labor-saving technology causes which of the following? (i)
The marginal productivity of labor increases.
(ii)
The marginal productivity of labor decreases.
(iii)
Labor demand shifts to the right.
(iv)
Labor demand shifts to the left.

Accepted Answer

The answer of Labor-saving technology causes which of the following?...

Question 19

If the price of Verizon cell phones falls, what will happen to the demand curve for Verizon sales people?

Accepted Answer

If the price of Verizon cell phones falls, people will buy more of them, which will increase the demand for Verizon sales people. This will shift the demand curve for Verizon sales people to the left.

Question 20

Which of the following events could increase the demand for labor?

Accepted Answer

An increase in the marginal productivity of workers would make each worker more valuable and increase the demand for labor, as firms seek to hire more workers to take advantage of their increased productivity. A decrease in output price (A) or wage paid to workers (D) would generally decrease demand for labor, as firms would be less incentivized to hire workers if they are earning less revenue or if labor costs are lower. A decrease in the amount of capital available for workers to use (B) might also decrease demand for labor if it means that workers have less equipment or technology to work with, which could reduce their productivity and make them less valuable to firms.

Quiz 18: The Markets for the Factors of Production

Which of the following would increase the demand for labor? (i) A decrease in the output price (ii) An increase in the output price (iii) A labor-saving technological advance (iv) A labor-augmenting technological advance