Question 1

A change in the supply of any one factor alters the earnings of all the other factors.

Accepted Answer

A change in the supply of any one factor can cause a shift in the equilibrium price of that factor, which in turn can affect the wages or earnings of all the other factors of production. For example, if the supply of skilled labor increases, the equilibrium wage for skilled labor may decrease, which could lead to a decrease in the wages of other factors of production, such as unskilled labor or capital.

Question 2

The rental price of capital is the price a person pays to own the capital indefinitely.

Accepted Answer

The rental price of capital is the price a person pays to use the capital for a limited period of time, not to own it indefinitely.

Question 3

The marginal product of land depends on the quantity of land that is available.

Accepted Answer

This is because as more land is added, the marginal product may increase at first due to factors such as specialization and division of labor, but eventually it will begin to decrease due to diminishing returns.

Question 4

Capital owners are compensated according to the value of the marginal product of that capital.

Accepted Answer

The value of the marginal product of capital refers to the additional output that a firm can produce by adding one more unit of capital. Capital owners are compensated based on the value of this additional output or marginal product, which is determined by market forces of supply and demand.

Question 5

Increases in productivity are not responsible for increased standards of living in the United States.

Accepted Answer

Increases in productivity have contributed significantly to the increased standards of living in the United States. As productivity has increased, it has led to higher wages and lower costs of goods and services, which has allowed people to purchase more and enjoy a better quality of life.

Question 6

Suppose an influenza pandemic were to significantly decrease the population of a country.We would predict a decrease in the marginal product of land in that country.

Accepted Answer

The answer of Suppose an influenza pandemic were to significantly...

Question 7

For a snow-removal business,the capital stock would include inputs such as snow blowers and shovels.

Accepted Answer

Capital stock refers to the physical assets, such as equipment and machinery, that a business uses to produce goods or services. In the case of a snow-removal business, snow blowers and shovels would be considered part of the capital stock.

Question 8

Explain how a firm values the contribution of workers to its profitability.Would a profit-maximizing competitive firm ever stop increasing employment as long as marginal product is rising? Explain your answer.

Accepted Answer

The answer of Explain how a firm values the contribution...

Question 9

Average productivity can be measured as total output divided by total units of labor.

Accepted Answer

This is the definition of average productivity. Total output refers to the amount of goods or services produced, while total units of labor refers to the number of workers contributing to the production process.

Question 10

Describe the difference between a diminishing marginal product of labor and a negative marginal product of labor.Why would a profit-maximizing firm always choose to operate where the marginal product of labor is decreasing (but not negative)?

Accepted Answer

The answer of Describe the difference between a diminishing marginal...

Question 11

An event that changes the supply of any factor of production can alter the earnings of all the factors.

Accepted Answer

If the supply of a factor of production (such as labor) increases, then the price (wages) of that factor will decrease. This will likely increase the profits of firms that use that factor, but decrease the earnings of the workers supplying that factor. Similarly, if the supply of a factor decreases, then the price of that factor will increase, affecting the earnings of all the factors that rely on that input.

Question 12

When a firm decides to retain its earnings instead of paying dividends,the stockholders necessarily suffer.

Accepted Answer

Retaining earnings can lead to growth of the firm, which can eventually result in an increase in stock price and, therefore, benefit the stockholders. However, if the earnings are poorly invested or mismanaged, the stockholders may suffer a decrease in stock price or lower returns in the future. Ultimately, whether retaining earnings is beneficial or not depends on the specific circumstances of the firm and its stockholders.

Question 13

Suppose the supply of capital decreases.As a result,the quantity of capital used in production and the rental price of capital will both fall.

Accepted Answer

When the supply of capital decreases, the quantity of capital used in production might fall, but the rental price of capital will increase due to the reduced supply and unchanged demand, leading to higher prices for the use of capital.

Question 14

Capital income does not include income paid to households for the use of their capital.

Accepted Answer

Capital income includes income paid to households for the use of their capital, such as interest, dividends, and rental income.

Question 15

For profit-maximizing,competitive firms,the demand curve for each factor of production equals the value of the marginal product of that factor.

Accepted Answer

This statement is known as the marginal productivity theory of resource demand, which states that in a perfectly competitive market, firms will hire a factor of production until its marginal revenue product equals its marginal cost, which is the same as the value of the marginal product. Therefore, the demand curve for each factor of production will equal the value of its marginal product.

Question 16

In the 1980s,the dangerous Ebola virus entered the United States through contaminated monkeys that were imported for use in medical experiments.Suppose this virus had not been contained but had spread to the general population.Assume that the virus is lethal in half of the people who are exposed to it.Describe the resulting effect on labor productivity.

Accepted Answer

The answer of In the 1980s,the dangerous Ebola virus entered...

Question 17

Using the theory of wage determination,explain why wages in developing countries,where levels of capital are small,are typically quite low.

Accepted Answer

The answer of Using the theory of wage determination,explain why...

Question 18

Profit maximization by firms ensures that the equilibrium wage always equals the value of the marginal product of capital.

Accepted Answer

Profit maximization by firms ensures that the equilibrium wage always equals the value of the marginal product of labor, not capital.

Question 19

Firms pay out a portion of their earnings in the form of interest and dividends,and those payments are a portion of the economy's capital income.

Accepted Answer

This statement is true. Firms pay out a portion of their earnings in the form of interest and dividends, which are components of the economy's capital income.

Question 20

If the output price of a product rises,the demand for capital will increase,raising the rental price of capital.

Accepted Answer

When the output price of a product rises, the demand for capital increases as firms look to invest in more capital to produce more output. This increase in demand for capital raises the rental price of capital as the supply of capital is limited.

Quiz 18: The Market For the Factors of Production.