Question 1

Figure 18-5
The figure shows a particular profit-maximizing, competitive firm's value-of-marginal-product (VMP) curve. On the horizontal axis, L represents the number of workers. The time frame is daily. 
-Refer to Figure 18-5. Suppose the marginal product of the fifth unit of labor is 30 units of output per day. The figure implies that the

Accepted Answer

The marginal product of labor is the additional output produced by an additional unit of labor. If the marginal product of the fifth unit of labor is 30 units and the price of output is $4, then the value of the marginal product is 30 units * $4 = $120, which matches the daily wage.

Question 2

Table 18-B
Consider the following daily production data for MadeFromScratch, Inc. MadeFromScratch sells cupcakes for $3 each and pays the workers a wage of $325 per day. 
-Refer to Table 18-B. What is the value of the marginal product of the third worker?

Accepted Answer

The answer of Table 18-B
Consider the following daily production data...

Question 3

Table 18-B
Consider the following daily production data for MadeFromScratch, Inc. MadeFromScratch sells cupcakes for $3 each and pays the workers a wage of $325 per day. 
-Refer to Table 18-B. What is the value of the marginal product of the second worker?

Accepted Answer

The marginal product of labor (MPL) is the additional output produced by adding one more unit of labor. To calculate the MPL, we take the difference in output produced by two levels of labor input. In this case, the MPL of the second worker can be calculated as the difference between the total production with 2 workers and the total production with 1 worker.

Total production with 1 worker = 60 cupcakes
Total production with 2 workers = 140 cupcakes
MPL of second worker = (Total production with 2 workers - Total production with 1 worker) / (Number of workers added)
= (140 - 60) / (2 - 1)
= 80 cupcakes

The value of the MPL is then calculated by multiplying the MPL by the price of each cupcake:

Value of MPL of second worker = MPL x Price of Cupcake
= 80 x $3
= $240

Since the wage paid to the workers is $325 per day, the firm would not want to hire an additional worker if the MPL of the worker is less than $325. In this case, the MPL of the second worker is $240, which is less than the wage paid, so the firm should not hire a third worker. Therefore, the best choice is not to hire an additional worker.

Question 4

Suppose a labor-augmenting technology were developed for a product that increased the marginal product of labor for all workers. Which of the following would happen in the labor market for this product?

Accepted Answer

Labor-augmenting technology increases the marginal product of labor for all workers, which means that the productivity of workers increases. As a result, firms would demand more labor to take advantage of the higher productivity levels, leading to an increase in demand for labor. Therefore, option B is correct.

Question 5

A consultant interviews the hiring manager of a small, profit-maximizing firm. The manager explains that the firm used to have 15 employees but decided not to rehire when the most-recently-hired employee left the company, so the firm now has 14 employees. We can infer that

Accepted Answer

The firm's decision not to rehire the 15th employee implies that the wage paid to that employee exceeded the value of the marginal product of labor, otherwise, the firm would have continued to employ them. This is consistent with profit-maximizing behavior, as the firm would not want to pay more for labor than the value it generates. Option B cannot be inferred. Option C and D are not necessarily true.

Question 6

Figure 18-4
The graph below illustrates the market for nurses who work in doctors' offices. 
-Refer to Figure 18-4. Each August many students entering college for the first time visit a doctor's office to have an MMR booster vaccine. If a new labor-saving technology exists that allows robots to administer the vaccine quickly and accurately, what happens in the market for nurses?

Accepted Answer

The introduction of a new labor-saving technology that allows robots to administer the vaccine quickly and accurately would decrease the demand for nurses who primarily administer MMR booster vaccines in doctors' offices. As a result, the demand curve for nurses would shift leftward from D2 to D1. This means that at any given wage rate, fewer nurses will be employed.

Question 7

Table 18-B
Consider the following daily production data for MadeFromScratch, Inc. MadeFromScratch sells cupcakes for $3 each and pays the workers a wage of $325 per day. 
-Refer to Table 18-B. What is the third worker's marginal product of labor?

Accepted Answer

The marginal product of labor is the additional output produced by adding one more worker. If the third worker's marginal product is 125 cupcakes, it means that the addition of the third worker increased total output by 125 cupcakes.

Question 8

Figure 18-5
The figure shows a particular profit-maximizing, competitive firm's value-of-marginal-product (VMP) curve. On the horizontal axis, L represents the number of workers. The time frame is daily. 
-Refer to Figure 18-5. The value-of-marginal-product curve that is drawn could be relabeled as the firm's

Accepted Answer

The value-of-marginal-product (VMP) curve is the same as the marginal revenue product (MRP) curve, which represents the firm's demand for labor. Therefore, the VMP curve in this figure is the firm's labor demand curve.

Question 9

A consultant interviews the hiring manager of a small, profit-maximizing firm. The manager explains that the firm used to have 15 employees, but the most-recently-hired employee has just left the company. The firm is currently advertising to hire a worker to replace the employee who just left at the same wage rate. We can infer that

Accepted Answer

The answer of A consultant interviews the hiring manager of...

Question 10

Figure 18-5
The figure shows a particular profit-maximizing, competitive firm's value-of-marginal-product (VMP) curve. On the horizontal axis, L represents the number of workers. The time frame is daily. 
-Refer to Figure 18-5. Assume that two points on the firm's production function are (L = 2, Q = 180) and (L = 3, Q = 228), where L = number of workers and Q = quantity of output. The firm pays its workers $120 per day. The firm's non-labor costs are fixed, and they amount to $250 per day. We can conclude that

Accepted Answer

To calculate the marginal cost per unit of output, we need to divide the additional cost of hiring one more worker ($120) by the additional output produced by that worker (Q2 - Q1 = 228 - 180 = 48). So the marginal cost per unit of output is $120/48 = $2.50. We cannot determine whether hiring a third worker would increase profit without knowing the firm's VMP at that level of employment. And while the firm's maximum profit occurs where VMP = wage rate, we do not have enough information to determine the exact number of workers needed to achieve this. We also cannot determine the firm's selling price based on the information given. Therefore, the only conclusion we can draw is that the marginal cost per unit of output is $2.50.

Question 11

Table 18-B
Consider the following daily production data for MadeFromScratch, Inc. MadeFromScratch sells cupcakes for $3 each and pays the workers a wage of $325 per day. 
-Refer to Table 18-B. What is the second worker's marginal product of labor?

Accepted Answer

The marginal product of labor is the additional output produced by adding one more worker. If the first worker produces 200 cupcakes and the second worker increases total production to 350 cupcakes, the second worker's marginal product is 350 - 200 = 150 cupcakes.

Question 12

Labor-augmenting 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

Labor-augmenting technology increases the efficiency of labor, hence increasing the marginal productivity of labor. It also leads to an increase in labor demand, as firms would want to employ more workers to take advantage of the new technology. Therefore, the correct choices are (i) and (iii). The marginal productivity of labor would not decrease because the technology is augmenting labor, not reducing its efficiency. There is no reason for labor demand to shift to the left, as the technology is expected to increase efficiency and productivity of workers, making them more valuable to firms.

Question 13

Figure 18-5
The figure shows a particular profit-maximizing, competitive firm's value-of-marginal-product (VMP) curve. On the horizontal axis, L represents the number of workers. The time frame is daily. 
-Refer to Figure 18-5. The firm would choose to hire three workers if

Accepted Answer

The firm would hire workers until the marginal revenue product (MRP) of labor equals the wage. If the market wage is $220, the firm would hire three workers if the MRP of the third worker is at least $220.

Question 14

Table 18-B
Consider the following daily production data for MadeFromScratch, Inc. MadeFromScratch sells cupcakes for $3 each and pays the workers a wage of $325 per day. 
-Refer to Table 18-B. The marginal product of labor begins to diminish with the addition of which worker?

Accepted Answer

The answer of Table 18-B
Consider the following daily production data...

Question 15

Table 18-B
Consider the following daily production data for MadeFromScratch, Inc. MadeFromScratch sells cupcakes for $3 each and pays the workers a wage of $325 per day. 
-Refer to Table 18-B. Assuming MadeFromScratch is a competitive, profit-maximizing firm, how many workers will the firm hire?

Accepted Answer

To determine the optimal level of labor needed, we need to calculate the marginal product of labor (MPL) and the marginal revenue product of labor (MRP). MPL is calculated by dividing the change in total output by the change in labor input. MRP is calculated by multiplying the MPL by the price of the output (in this case, cupcakes).

In Table 18-B, we can see that when the firm hires the first worker, output increases from 0 to 12 cupcakes, so MPL for the first worker is 12. MRP for the first worker is $3/cupcake * 12 cupcakes = $36/day.

When the firm hires the second worker, output increases from 12 to 20 cupcakes, so MPL for the second worker is 8. MRP for the second worker is $3/cupcake * 8 cupcakes = $24/day.

When the firm hires the third worker, output increases from 20 to 24 cupcakes, so MPL for the third worker is 4. MRP for the third worker is $3/cupcake * 4 cupcakes = $12/day.

When the firm hires the fourth worker, output increases from 24 to 26 cupcakes, so MPL for the fourth worker is 2. MRP for the fourth worker is $3/cupcake * 2 cupcakes = $6/day.

As we can see, each additional worker contributes less and less to output, and therefore to revenue. Because the firm is profit-maximizing, it will stop hiring labor when the cost of hiring an additional worker (the wage of $325) exceeds the additional revenue that worker would bring in (MRP). This happens at the third worker, where MRP = $12/day, which is less than the wage of $325/day. Therefore, the firm will hire 3 workers.

Question 16

Figure 18-5
The figure shows a particular profit-maximizing, competitive firm's value-of-marginal-product (VMP) curve. On the horizontal axis, L represents the number of workers. The time frame is daily. 
-Refer to Figure 18-5. Suppose one point on the firm's production function is (L = 3, Q = 180), where L = number of workers and Q = quantity of output. If the firm sells its output for $5 per unit, then

Accepted Answer

From the given point (L=3, Q=180), we can see that the VMP of the third worker is $60 (i.e. the change in output from the second to the third worker is 60 units and the firm sells each unit for $5). This implies that the firm will hire additional workers as long as their wage is below $60 per day. Therefore, the firm will hire a fourth worker if it pays workers $160 per day (i.e. $60 x 4 < $160). This also confirms choice C. Additionally, since the VMP curve is downward sloping, we know that the marginal product of labor is decreasing as more workers are hired, which confirms choice B. Finally, we can find the output corresponding to L=4 by noticing that the VMP of the fourth worker is $40 (i.e. the change in output from the third to the fourth worker is 40 units) and multiplying it by the price per unit ($40 x $5 = $200). Therefore, the firm's production function exhibits (L=4, Q=216), which confirms choice A.

Question 17

Figure 18-4
The graph below illustrates the market for nurses who work in doctors' offices. 
-Refer to Figure 18-4. Each August many students entering college for the first time visit a doctor's office to have an MMR booster vaccine. If a new labor-augmenting technology exists that allows nurses to administer the vaccine more quickly and accurately, what happens in the market for nurses?

Accepted Answer

The introduction of a labor-augmenting technology that allows nurses to administer vaccines more efficiently would increase the demand for nurses, as they can now perform their tasks more effectively, leading to an increase in demand from D1 to D2.

Question 18

In 2015, the total income of all U.S. residents was about

Accepted Answer

According to the World Bank, the total income of all U.S. residents in 2015 was approximately $16 trillion. Therefore, the best choice is D.

Question 19

Table 18-A 
-Refer to Table 18-A. The price of output is

Accepted Answer

The correct choice is $5, as it is the price of output mentioned in Table 18-A.

Question 20

For a competitive, profit-maximizing firm, the demand curve for labor will shift in response to a change in the

Accepted Answer

The demand curve for labor is determined by the marginal revenue product of labor, which is dependent on the price of the product that the firm sells. Therefore, a change in the price of the product will shift the demand curve for labor. Choices A, B, and D are incorrect because they either describe movements along the demand curve or refer to changes in the supply of labor, which do not directly impact the demand for labor.

Quiz 18: The Markets for the Factors of Production

Table 18-B Consider the following daily production data for MadeFromScratch, Inc. MadeFromScratch sells cupcakes for $3 each and pays the workers a wage of $325 per day. -Refer to Table 18-B. What is the value of the marginal product of the third worker?

Table 18-B Consider the following daily production data for MadeFromScratch, Inc. MadeFromScratch sells cupcakes for $3 each and pays the workers a wage of $325 per day. -Refer to Table 18-B. What is the value of the marginal product of the second worker?

Suppose a labor-augmenting technology were developed for a product that increased the marginal product of labor for all workers. Which of the following would happen in the labor market for this product?

A consultant interviews the hiring manager of a small, profit-maximizing firm. The manager explains that the firm used to have 15 employees but decided not to rehire when the most-recently-hired employee left the company, so the firm now has 14 employees. We can infer that

Table 18-B Consider the following daily production data for MadeFromScratch, Inc. MadeFromScratch sells cupcakes for $3 each and pays the workers a wage of $325 per day. -Refer to Table 18-B. What is the third worker's marginal product of labor?

Table 18-B Consider the following daily production data for MadeFromScratch, Inc. MadeFromScratch sells cupcakes for $3 each and pays the workers a wage of $325 per day. -Refer to Table 18-B. What is the second worker's marginal product of labor?

Labor-augmenting 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.

Figure 18-5 The figure shows a particular profit-maximizing, competitive firm's value-of-marginal-product (VMP) curve. On the horizontal axis, L represents the number of workers. The time frame is daily. -Refer to Figure 18-5. The firm would choose to hire three workers if

Table 18-B Consider the following daily production data for MadeFromScratch, Inc. MadeFromScratch sells cupcakes for $3 each and pays the workers a wage of $325 per day. -Refer to Table 18-B. The marginal product of labor begins to diminish with the addition of which worker?

Table 18-B Consider the following daily production data for MadeFromScratch, Inc. MadeFromScratch sells cupcakes for $3 each and pays the workers a wage of $325 per day. -Refer to Table 18-B. Assuming MadeFromScratch is a competitive, profit-maximizing firm, how many workers will the firm hire?

In 2015, the total income of all U.S. residents was about

Table 18-A -Refer to Table 18-A. The price of output is

For a competitive, profit-maximizing firm, the demand curve for labor will shift in response to a change in the