Question 1

The benefit to the firm of hiring another worker is

Accepted Answer

The benefit to the firm of hiring another worker is the extra output produced by the worker. Hiring another worker should lead to an increase in output that can generate additional revenue for the firm, making it more profitable. The nominal and real wage, as well as the price level, are all important factors to consider when making hiring decisions, but they do not directly determine the benefit to the firm of hiring another worker. The height of the production function is also important in determining output, but it is not a measure of the benefit to the firm of hiring another worker.

Question 2

A firm hires labor up to the point where the

Accepted Answer

The firm hires labor up to the point where the additional hour of labor produces extra output that equals the real wage rate. This is because the real wage rate reflects the purchasing power of the wage earned, and the firm wants to ensure that the wage paid to labor is equivalent to the additional output they produce. At this point, the firm is maximizing its production efficiency while also ensuring that it is not overpaying for labor.

Question 3

The quantity of labor demanded by a firm depends upon

Accepted Answer

The quantity of labor demanded by a firm depends upon the real wage rate, not the nominal wage rate, because real wage rate measures the purchasing power of the nominal wage. If the nominal wage increases, but the price level also increases by the same percentage, then the real wage remains constant and there will be no impact on the quantity of labor demanded by the firm. However, if the price level decreases, the real wage rate will increase which will increase the quantity of labor demanded by the firm.

Question 4

Suppose the price of a product is $4 and the nominal wage that the firm must pay is $20. Then the firm's real wage is

Accepted Answer

The real wage is calculated by dividing the nominal wage by the price level. In this case, the price level is 4 (the price of the product), so the real wage is $20/$4 = $5. Option C is the correct answer.

Question 5

The quantity of labor demanded is the labor hours all

Accepted Answer

The quantity of labor demanded refers to the total number of labor hours that firms plan to hire at a given real wage rate. This is because firms are the ones who employ workers and therefore make decisions about the amount of labor they require at different wage rates.

Question 6

The lower the real wage rate, the

Accepted Answer

If the real wage rate is low, firms can hire more workers without increasing their costs too much. Therefore, more workers become profitable to employ, and firms can expand their workforce. This also means there are more job opportunities available, leading to an increase in the quantity of labor demanded in the market.

Question 7

The real wage rate is the ________ divided by the ________.

Accepted Answer

The real wage rate is the purchasing power of the nominal wage rate, which is calculated by dividing the nominal wage rate by the price level. Therefore, the real wage rate is the nominal wage rate divided by the price level.

Question 8

Firms hire more labor as long as

Accepted Answer

Firms hire more labor as long as the additional output the labor produces is greater than the real wage rate they have to pay for it. This means that the real wage rate should be less than the marginal revenue product of labor (MRPL), which is the additional output produced by an additional unit of labor. Therefore, choice A is the correct answer.

Question 9

The Bubby Gum factory produces bubble gum. Joanne is one of the employees, and she produces 10 packs of bubble gum per hour. Joanne's money wage rate is $12 per hour. If a packet of bubble gum sells for $1.00, then

Accepted Answer

Joanne produces 10 packs per hour, generating $10 in revenue per hour, but her wage is $12 per hour, resulting in a $2 loss per hour for the firm.

Question 10

The Bubby Gum factory produces bubble gum. Joanne is one of the employees, and she produce 10 packs of bubble gum per hour. Joanne's money wage rate is $12 per hour. Based on this information, the Bubby Gum company should

Accepted Answer

The information provided is insufficient to determine whether Joanne creates a profit or loss for the firm, as it lacks details on the selling price of the bubble gum packs and other associated costs.

Question 11

The demand for labor reflects the point that the

Accepted Answer

The demand for labor reflects the point that the lower the real wage rate, the greater the quantity of labor demanded. This is because, with lower wages, firms can afford to hire more workers, leading to an increase in the quantity of labor demanded. Conversely, if the real wage rate is high, firms may not be able to afford to hire as many workers, resulting in a decrease in the quantity of labor demanded.

Question 12

If the real wage rate decreases from $9.00 per hour to $8.00 per hour, the

Accepted Answer

When the real wage rate decreases, the quantity demanded of labor increases because employers are willing to hire more workers at a lower wage.

Question 13

A firm's demand for labor depends on the

Accepted Answer

The real wage rate takes into account the purchasing power of the nominal wage, which affects the firm's willingness to hire more workers. As the real wage rate increases, the cost of hiring each worker goes up, leading to a decrease in the quantity of labor demanded by the firm. Conversely, a decrease in the real wage rate makes hiring more workers more affordable, leading to an increase in the quantity of labor demanded. The other choices are either incorrect or not directly related to the firm's demand for labor.

Question 14

The demand for labor curve is

Accepted Answer

The demand for labor curve is downward-sloping because as the real wage rate decreases, firms are incentivized to hire more workers. As the real wage rate increases, firms are incentivized to hire fewer workers. This is due to the fact that as the wage rate increases, the cost of producing each unit of output also increases, and therefore firms must minimize costs by hiring fewer workers.

Question 15

As long as an additional worker hired by a firm produces

Accepted Answer

A firm will only hire an additional worker if the extra output the worker produces is greater than the cost of their wage. Therefore, if the additional worker produces more output than the real wage rate, it is profitable for the firm to hire them.

Question 16

Hershey Chocolate Factory pays a money wage rate equal to $30 per hour and sells its candy bars for $1.50 each. Hershey Chocolate Factory should hire labor until an additional unit of labor produces ________ candy bars an hour.

Accepted Answer

Hershey Chocolate Factory should hire labor until the additional unit of labor produces enough candy bars to cover the wage rate of $30 per hour, which means they need to produce at least 20 candy bars per hour. If they produce less than 20 candy bars per hour, then the cost of the labor exceeds the revenue generated from the sale of the candy bars, resulting in a net loss for the company.

Question 17

An increase in the real wage rate ________ the quantity of labor demanded and ________ the quantity of labor supplied.

Accepted Answer

The answer of An increase in the real wage rate...

Question 18

Suppose that the Australian economy initially uses 50 billion hours of labor to produce $5 trillion of real GDP. If 50 billion more hours are employed and Australia's real GDP increases by $4 trillion more,

Accepted Answer

A production function with increasing returns would result in a more than proportional increase in output with an increase in inputs, such as labor. However, since the increase in labor hours resulted in a less than proportional increase in output, Australia's production function exhibits diminishing returns. The Okun wedge and Lucas wedge are measures of inefficiency in the labor market and are not relevant to this scenario. The slope of the production possibility frontier is not given and cannot be inferred from the information provided.

Question 19

When all other influences on firms' hiring plans remain the same, the

Accepted Answer

When all other influences on firms' hiring plans remain the same, a lower real wage rate makes hiring workers more attractive to firms, as they can get more labor for a lower cost. Therefore, the quantity of labor demanded by firms increases as the real wage rate decreases.

Question 20

The total labor hours that all the firms in the economy plan to hire during a given time period at one particular real wage rate is the

Accepted Answer

The total labor hours that all the firms in the economy plan to hire at a given wage rate represents the quantity of labor demanded in the economy.

Quiz 17: Potential Gdp and Economic Growth