Question 1

Given that the market wage rate is $50 and both the labor and the goods market are perfectly competitive,a profit-maximizing firm should hire an additional worker if ________.

Accepted Answer

A profit-maximizing firm should only hire additional workers if the value of the marginal product of the worker (i.e. the additional revenue earned from hiring one more worker) is greater than or equal to the wage rate. In this case, if the market wage rate is $50, the firm should hire an additional worker only if the value of their marginal product is also at least $50. Therefore, Option B is the correct choice as it confirms that the value of the marginal product is equal to or greater than the wage rate.

Question 2

The following figure depicts the labor markets of two different firms.
 
-Refer to the figure above.If firm B wants to hire 6 employees and pay a wage of $6,what is the market price of its output?

Accepted Answer

When firm B wants to hire 6 employees and pay a wage of $6, we can find the corresponding point on Firm B's labor market curve which is (6, $6). We then draw a horizontal line from this point to intersect with Firm B's production function curve. The point of intersection is the level of the output that firm B must produce in order to employ 6 workers at a wage of $6. We then find this output on the horizontal axis and read off the corresponding market price of the output which is $2. Therefore, the market price of output is $2 when firm B wants to hire 6 employees and pay a wage of $6.

Question 3

The negative slope of the labor demand curve can be attributed to ________.

Accepted Answer

The negative slope of the labor demand curve is a result of the Law of Diminishing Marginal Returns, which states that as more units of a variable input (such as labor) are added to a fixed input (such as capital), the marginal product of that input will eventually decrease. Therefore, employers will demand less labor as the cost of hiring additional workers exceeds the additional revenue generated by their marginal product.

Question 4

The value of the marginal product of labor is the ________.

Accepted Answer

The value of the marginal product of labor (VMPL) is the additional revenue that a firm earns by employing one additional unit of labor. It is calculated by dividing the change in total revenue by the change in the quantity of labor. Thus, it represents the contribution of an additional unit of labor to a firm's revenue.

Question 5

If the market for labor is perfectly competitive,the wage rate for labor equals the ________.

Accepted Answer

In a perfectly competitive labor market, firms are price takers and must pay the prevailing wage rate. The value of the marginal product of labor represents the additional revenue generated by each additional unit of labor employed, which is the maximum amount a firm is willing to pay for that unit of labor. Therefore, in equilibrium, the wage rate will equal the value of the marginal product of labor.

Question 6

If the marginal product of a worker is 10 units and each unit of the good is sold for $5,the value of the marginal product of the worker is ________.

Accepted Answer

The value of the marginal product of the worker is equal to the marginal product of the worker multiplied by the price of the good. In this case, the marginal product of the worker is 10 units and the price of the good is $5 per unit, so the value of the marginal product of the worker is 10 x $5 = $50. Therefore, the correct choice is D, $50.

Question 7

The figure below shows output of a firm at different number of workers. Payment to workers is the only variable cost of the firm.
 
-Refer to the figure above.If the price of the output is $5.00 per unit and the wage is $30 per worker,the firm's optimal choice in the short run is to hire ________ workers.

Accepted Answer

The firm's optimal choice in the short run is to hire 3 workers because at this point, the marginal revenue product of labor (MRPL) is equal to the wage rate.

Question 8

The decision rule for a profit-maximizing firm operating in a competitive market to hire an additional worker is that the value of the ________.

Accepted Answer

A profit-maximizing firm in a competitive market will hire an additional worker if the value of the marginal product of that worker is equal to or greater than the wage rate. This is because the additional output generated by the worker will increase the firm's revenue by at least as much as the cost of hiring the worker.

Question 9

Suppose the market wage facing a firm in the perfectly competitive candle-making industry is $20 per hour,and the firm sells its candles for $2 each.Given this information,the firm should hire workers until the marginal product of labor equals ________.

Accepted Answer

The firm should hire workers until the value of the marginal product of labor equals the wage rate. Since the firm sells its candles for $2 each, to equal the wage rate of $20 per hour, the marginal product of labor must be 10 candles per hour ($20/$2 per candle = 10 candles).

Question 10

The following figure depicts the labor markets of two different firms.
 
-Refer to the figure above.If firm A wants to hire 6 employees and pay a wage of $6,what is the market price of its output?

Accepted Answer

To hire 6 employees, firm A needs to pay a wage of $6, which is the point where the firm's labor demand intersects with the labor supply. At this point, the market wage rate is $1, which is the price that workers are willing and able to work for. To find the market price of output, we need to look at the point where labor demand intersects with the marginal revenue product (MRP) curve. At a wage rate of $1, firm A can hire 6 workers, and the MRP of the 6th worker is $6. Therefore, the market price of firm A's output is $6/6 = $1.

Question 11

Suppose a firm sells its product in a competitive market.If the ongoing wage rate in a competitive labor market is $30 and the market price of a firm's product is $2,then which of the following statements is true?

Accepted Answer

The answer of Suppose a firm sells its product in...

Question 12

The value of the marginal product of labor is given by ________.

Accepted Answer

The value of the marginal product of labor is calculated by multiplying the marginal product of labor (how much extra output is produced by adding one more unit of labor) by the price of the final good produced. This gives the additional revenue generated from employing one more unit of labor.

Question 13

The firm's value of marginal product of labor schedule slopes downward due to declining ________.

Accepted Answer

The value of marginal product of labor (VMPL) schedule is downward sloping due to declining marginal product of labor (MPL). As more labor is hired, the MPL decreases, which leads to a decrease in VMPL. Marginal revenue, marginal cost, and product price are not directly related to the VMPL schedule.

Question 14

When a firm hires 10 units of labor,20 pens are produced.When it hires another unit of labor,the total output increases to 23 pens.If the price of one pen is $2,the value of the marginal product of the eleventh unit of labor is ________.

Accepted Answer

The value of the marginal product of the eleventh unit of labor is calculated by the increase in output (3 pens) multiplied by the price of one pen ($2), which equals $6.

Question 15

The profit-maximizing rule for a competitive firm is to hire labor until ________.

Accepted Answer

The profit-maximizing rule for a competitive firm is to hire labor until the value of the marginal product of labor equals the wage. This is because hiring workers adds to the total output of the firm and increases the revenue, but also incurs a cost, which is the wage paid to the workers. Therefore, the firm will continue to hire workers as long as the value of the additional output produced by each worker (the marginal product of labor) is greater than the cost of hiring that worker (the wage). At the point where these two values are equal, further hiring would not increase profits, and the firm will stop hiring additional workers.

Question 16

The following figure depicts the labor markets of two different firms.
 
-Refer to the figure above.Let the price of A's output be PA and the price of B's output be PB.If firm A hires 8 employees at a wage of $12 and firm B hires 2 employees at a wage of $18,what is the ratio PA/PB?

Accepted Answer

At equilibrium, the marginal product of labor equals the wage rate in both firms.
For firm A, the wage rate is $12 and the marginal product of the eighth worker is worth $30, which is the market wage rate. Therefore, the price of A's output (PA) is 8*$30 = $240.
For firm B, the wage rate is $18 and the marginal product of the second worker is worth $30, which is the market wage rate. Therefore, the price of B's output (PB) is 2*$30 = $60.
Therefore, the ratio of PA to PB is $240/$60 = 4. Answer choice C is closest to 4, so it is the best choice.

Question 17

The following figure depicts the labor markets of two different firms.
 
-Refer to the figure above.Let the price of A's output be PA and the price of B's output be PB.If both firms hire 4 employees at a wage of $8,what is the ratio PA/PB?

Accepted Answer

The answer of The following figure depicts the labor markets...

Question 18

If the value of the marginal product of a worker is $40 and the marginal product of the worker is 8 units,the market price of the good he produces is ________.

Accepted Answer

The value of the marginal product of a worker is calculated as the marginal product of the worker multiplied by the market price of the good. Given that the value of the marginal product is $40 and the marginal product is 8 units, we find the market price by dividing $40 by 8 units, which equals $5.

Question 19

If the value of the marginal product of a worker is $20 and the market price of the good she produces is $5,her marginal product is ________.

Accepted Answer

The marginal product of a worker is calculated by dividing the value of the marginal product by the market price of the good. Therefore, $20 / $5 = 4 units.

Question 20

The figure below shows output of a firm at different number of workers. Payment to workers is the only variable cost of the firm.
 
-Refer to the figure above.If the price of the output is $5.00 per unit and the wage is $10 per worker,the firm's optimal choice in the short run is to hire ________ workers.

Accepted Answer

The answer of The figure below shows output of a...

Quiz 11: Markets for Factors of Production