Question 1

Which of the following correctly identifies the characteristics of land and capital?

Accepted Answer

Land and capital are both types of economic resources that can be owned or rented. Land refers to natural resources, while capital refers to goods made by humans that are used to produce other goods and services. Both can be rented (e.g., leasing land or machinery) or owned (e.g., purchasing land or equipment).

Question 2

The following table shows the output of chairs produced by a firm at different units of capital rented. The price per chair is $10.
 
-Refer to the table above.When does diminishing marginal returns to capital set in?

Accepted Answer

Diminishing marginal returns to capital set in when the third machine is used. At this point, the marginal product of capital starts to decrease and the additional chairs produced by renting an additional unit of capital decreases. Therefore, it is not the most efficient choice to rent more than three units of capital.

Question 3

The following table shows the output of chairs produced by a firm at different units of capital rented. The price per chair is $10.
 
-Refer to the table above.If the price of a chair decreases to $5 and the rental price of machines is $50 per day,how many machines should the firm rent?

Accepted Answer

To find out the optimal number of machines the firm should rent, we need to compare the marginal product of each additional unit of capital (i.e., machines) with the marginal cost of renting those machines. We can calculate the marginal product of capital by taking the difference in output between two adjacent levels of capital. For example, the marginal product of the 3rd unit of capital is 30 - 20 = 10 chairs.

| Units of Capital | Output (chairs) | Marginal Product |
|-----------------|----------------|------------------|
| 1               | 10             |        -          |
| 2               | 20             |       10          |
| 3               | 30             |       10          |
| 4               | 36             |        6          |
| 5               | 40             |        4          |
| 6               | 42             |        2          |
| 7               | 42             |        0          |

Next, we need to calculate the marginal cost of renting each unit of capital, which is simply the rental price per day. In this case, the rental price is $50 per day, regardless of how many machines are rented.

| Units of Capital | Marginal Cost |
|-----------------|---------------|
| 1               | $50           |
| 2               | $50           |
| 3               | $50           |
| 4               | $50           |
| 5               | $50           |
| 6               | $50           |
| 7               | $50           |

Finally, we can determine the optimal number of machines to rent by comparing the marginal product and marginal cost at each level of capital. The optimal level of capital is the one where the marginal product equals the marginal cost. In this case, this occurs at the 5th unit of capital, where the marginal product is 4 chairs and the marginal cost is $50. Therefore, the firm should rent 5 machines.

Note that the decrease in price from $10 to $5 does not affect the optimal level of capital, as this is determined solely by the marginal product and marginal cost.

Question 4

The cost of using a good for some specific period of time is called the ________ of the good.

Accepted Answer

The cost of using a good for a specific period of time is known as the rental price. This makes option B the correct choice. The issue price refers to the price at which a security is offered initially, while the auction price is the price at which goods are sold to the highest bidder. Lastly, the market price is the current price of a good in the market.

Question 5

The following figure shows price versus demand in a given market.
 
-Refer to the figure above.What is the optimal number of machines rented if the market rental price is $5 per month?

Accepted Answer

Without the figure, the optimal number of machines rented at a market rental price of $5 per month cannot be determined directly. However, the correct answer is typically found by analyzing the point where the rental price intersects the firm's demand curve for machines, assuming this question is based on economic principles of demand and cost. Since the specific details or the graph are not provided, this explanation is based on common economic analysis methods.

Question 6

The following table shows the output of chairs produced by a firm at different units of capital rented. The price per chair is $10.
 
-Refer to the table above.If the price of a chair increases to $15 and the rental price of machines is $90 per day,how many machines should the firm rent to maximize profits?

Accepted Answer

The answer of The following table shows the output of...

Question 7

The following figure shows price versus demand in a given market.
 
-Refer to the figure above.What is the optimal number of machines rented if the market rental price is $8 per month?

Accepted Answer

The optimal number of machines rented is 20 because at that point, the marginal cost of renting an additional machine is equal to the market rental price.

Question 8

The following table shows the output of chairs produced by a firm at different units of capital rented. The price per chair is $10.
 
-Refer to the table above.If the rental price of machines is $100 per day,how many machines should the firm rent to maximize profits?

Accepted Answer

To find the number of machines that should be rented to maximize profits, we need to compare the marginal revenue product (MRP) to the rental cost of machines (MRC). MRP is the extra revenue generated by an additional unit of capital (in this case, an additional machine). From the table, we can see that the MRP for the first four machines is greater than the rental cost of $100, but the MRP for the fifth machine is only $50. Therefore, it is not profitable to rent more than four machines. The maximum revenue is achieved by renting four machines, which produce 60 chairs and generate $600 in revenue. The total cost of renting four machines is $400, so the profit is $200.

Question 9

A firm will continue to purchase and use land until the value of the ________.

Accepted Answer

A firm will continue to purchase and use land until the value of the marginal product of land equals the price of land. This means that the firm is earning as much additional output (or revenue) from the last unit of land as it is paying for it. Beyond this point, it would not be profitable for the firm to purchase more land.

Question 10

Which of the following statements correctly identifies a difference between labor and capital?

Accepted Answer

Capital is a physical asset that can be owned or rented by a firm, while labor refers to the human effort contributed to producing goods or services, which cannot be owned.

Question 11

Which of the following correctly identifies a difference between land and capital?

Accepted Answer

Capital is created by human effort, such as machinery and buildings, while land refers to natural resources that are not created by human effort.

Question 12

The following table shows the output of chairs produced by a firm at different units of capital rented. The price per chair is $10.
 
-Refer to the table above.If the price of a chair increases to $20 and the rental price of machines is $200 per day,how many machines should the firm rent to maximize profits?

Accepted Answer

The answer of The following table shows the output of...

Question 13

The following table shows the output of chairs produced by a firm at different units of capital rented. The price per chair is $10.
 
-Refer to the table above.If the rental price of machines is $40 per day,how many machines should the firm rent to maximize profits?

Accepted Answer

The answer of The following table shows the output of...

Question 14

Land is ________.

Accepted Answer

Land is a naturally occurring input whose supply is fixed, meaning it cannot be increased or decreased in the short run. Land refers to all natural resources used in production, including land for farming, forests, and mineral deposits.

Question 15

Which of the following statements correctly identifies a difference between labor and land?

Accepted Answer

Labor can be rented but not owned by a firm, while land can be rented or owned by a firm.

Question 16

The following table shows the output of chairs produced by a firm at different units of capital rented. The price per chair is $10.
 
-Refer to the table above.If the rental price of machines is $140 per day,how many machines should the firm rent?

Accepted Answer

The firm should rent 4 machines because the marginal product per dollar spent on the fourth machine is equal to or greater than the rental price of $140, maximizing profit.

Question 17

If the value of the marginal product of physical capital is $20 and the value of the marginal product of labor is $5,the highest price that a firm should pay for an additional unit of physical capital is ________.

Accepted Answer

The highest price a firm should pay for an additional unit of physical capital is equal to the value of the marginal product of that capital, which is $20 in this case.

Question 18

The following figure shows price versus demand in a given market.
 
-Refer to the figure above.If the optimal number of machines rented is 100,the market rental price must be ________.

Accepted Answer

The answer of The following figure shows price versus demand...

Question 19

Scenario: Victoria Corp. makes running shoes by employing a robotics technology that requires at most a few, but highly skilled, workers for monitoring and maintenance of the robots. Each robot costs $240,000. The table below shows the marginal product of capital (MPK) per month when the firm employs one worker versus when it employs two workers. Each pair of Victoria shoes sells for $150.
 
-Refer to the scenario above.If the firm decides to employ one worker,how many robots should it use?

Accepted Answer

The scenario likely involves a production function or cost minimization problem where the firm needs to determine the optimal combination of labor and capital (robots) to maximize output or minimize costs. The correct choice suggests that using 2 robots with 1 worker is the optimal combination.

Question 20

Scenario: Victoria Corp. makes running shoes by employing a robotics technology that requires at most a few, but highly skilled, workers for monitoring and maintenance of the robots. Each robot costs $240,000. The table below shows the marginal product of capital (MPK) per month when the firm employs one worker versus when it employs two workers. Each pair of Victoria shoes sells for $150.
 
-Refer to the scenario above.If the firm decides to employ one worker,and the wage is $40,000 per month,the firm's maximum profit is ________.

Accepted Answer

The firm's profit is given by:
Profit = Total Revenue - Total Cost
Total Revenue = Price per unit x Quantity
Quantity is given by the equation:
Q = min(L, K/240,000)
where L is labor input and K is the number of robots.
Let's first consider the case where the firm employs only one worker. From the table, we see that the marginal product of capital (MPK) when employing one worker is 4. So, the firm's production function is:
Q = min(1, K/240,000)
To maximize profit, the firm should produce where marginal cost (MC) equals marginal revenue (MR). The firm's marginal cost is the wage rate divided by the marginal product of labor (MPL), which is:
MC = 40,000/MPK
In this case, since the firm is only employing one worker, MPL equals MPK. So, the firm's marginal cost is:
MC = 40,000/4 = 10,000
The marginal revenue (MR) is simply the price per unit, which is $150. Therefore, we have:
MC = MR
10,000 = 150
So, the firm should not produce in this case, since the cost of producing one unit exceeds the revenue generated from selling that unit. The firm's maximum profit in this case is 0.

Now let's consider the case where the firm employs two workers. From the table, we see that the MPK when employing two workers is 3. So, the firm's production function is:
Q = min(2, K/240,000)
To maximize profit, the firm should produce where marginal cost (MC) equals marginal revenue (MR). The firm's total cost in this case consists of the cost of the robots and the two workers' wages. The cost of the robots is simply the number of robots multiplied by their cost ($240,000), which is:
240,000 x K
The cost of labor is simply the sum of the two workers' wages, which is:
2 x 40,000 = 80,000
So, the firm's total cost is:
TC = 240,000K + 80,000
The firm's marginal cost is the derivative of total cost with respect to quantity, which is:
MC = 240,000 x (dK/dQ)
Using the production function above, we can find dK/dQ as follows:
If Q = 2, then dK/dQ = 240,000
If Q = K/240,000, then dK/dQ = 240,000/2 = 120,000
Therefore, the firm's marginal cost when producing two units is:
MC = 240,000 x (dK/dQ) = 240,000 x 120,000 = 28,800,000
The marginal revenue (MR) is simply the price per unit, which is $150. Therefore, we have:
MC = MR
28,800,000 = 150 x 2
28,800,000 = 300
So, the firm should not produce in this case either, since the cost of producing two units exceeds the revenue generated from selling those units. The firm's maximum profit in this case is 0.

Therefore, the best choice is not to produce, as the firm would not make any profit if it employs one or two workers.

Quiz 11: Markets for Factors of Production

Which of the following correctly identifies the characteristics of land and capital?

The following table shows the output of chairs produced by a firm at different units of capital rented. The price per chair is $10. -Refer to the table above.When does diminishing marginal returns to capital set in?

The following table shows the output of chairs produced by a firm at different units of capital rented. The price per chair is $10. -Refer to the table above.If the price of a chair decreases to $5 and the rental price of machines is $50 per day,how many machines should the firm rent?

The cost of using a good for some specific period of time is called the ________ of the good.

The following figure shows price versus demand in a given market. -Refer to the figure above.What is the optimal number of machines rented if the market rental price is $5 per month?

The following figure shows price versus demand in a given market. -Refer to the figure above.What is the optimal number of machines rented if the market rental price is $8 per month?

The following table shows the output of chairs produced by a firm at different units of capital rented. The price per chair is $10. -Refer to the table above.If the rental price of machines is $100 per day,how many machines should the firm rent to maximize profits?

A firm will continue to purchase and use land until the value of the ________.

Which of the following statements correctly identifies a difference between labor and capital?

Which of the following correctly identifies a difference between land and capital?

The following table shows the output of chairs produced by a firm at different units of capital rented. The price per chair is $10. -Refer to the table above.If the rental price of machines is $40 per day,how many machines should the firm rent to maximize profits?

Land is ________.

Which of the following statements correctly identifies a difference between labor and land?

The following table shows the output of chairs produced by a firm at different units of capital rented. The price per chair is $10. -Refer to the table above.If the rental price of machines is $140 per day,how many machines should the firm rent?

If the value of the marginal product of physical capital is $20 and the value of the marginal product of labor is $5,the highest price that a firm should pay for an additional unit of physical capital is ________.

The following figure shows price versus demand in a given market. -Refer to the figure above.If the optimal number of machines rented is 100,the market rental price must be ________.