Question 1

A firm is said to be a monopsonist if it is the sole seller of a commodity in the market.

Accepted Answer

A monopsonist is actually the sole buyer of a commodity in the market, not the seller.

Question 2

The profit-maximizing number of workers for a monopsony to employ is derived at the point where the marginal-revenue product of labor is equal to the marginal-factor cost of labor.

Accepted Answer

This is the correct statement regarding the profit-maximizing number of workers for a monopsony. The monopsony will hire workers until the marginal-revenue product of labor is equal to the marginal-factor cost of labor, in order to maximize profits.

Question 3

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month.He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-Refer to Scenario 14.1.If the worker joins Firm B,his opportunity cost is:

Accepted Answer

Opportunity cost is the value of the next best alternative that is foregone. In this case, the worker's opportunity cost is the income he would have earned in Firm A, which is $5,000 per month. Therefore, joining Firm B would mean giving up $5,000 per month, making the opportunity cost $5,000.

Question 4

If the resource market is perfectly competitive,the marginal factor cost is equal to the price of the resource.

Accepted Answer

In a perfectly competitive resource market, the marginal factor cost is equal to the price of the resource. This is because each additional unit of the resource costs the same as the previous unit, and firms can hire as much of the resource as they need at the market price. Therefore, the marginal factor cost and the price of the resource are the same.

Question 5

Monopsonists tend to exploit the resources as they are the sole employers of the resources.

Accepted Answer

Monopsonists have market power to set wages lower than the competitive level, which leads to the exploitation of resources such as labor. As they are the sole employers in the market, workers have limited alternative job opportunities, which gives the monopsonist the power to pay less than the fair value of the resource.

Question 6

If the government sets a minimum wage which is more than the equilibrium wage,the firms tend to demand more labor.

Accepted Answer

If the government sets a minimum wage which is more than the equilibrium wage, it creates a surplus of labor as more people would want to work at that wage than firms are willing to employ. Therefore, firms would actually tend to demand less labor, not more.

Question 7

Burger King has a direct demand for the cheese which it uses in its burgers.

Accepted Answer

The scenario only provides information about the worker's job offer and does not mention anything about Burger King's demand for cheese.

Question 8

The resource market comprises of the households and firms where the firms sell their resources to the households.

Accepted Answer

The resource market comprises of the households and firms where the households sell their resources (such as labor, land, and capital) to the firms.

Question 9

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month.He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-Refer to Scenario 14.1.If the worker joins Firm B,his economic rent is:

Accepted Answer

Economic rent is the difference between what a worker is paid and the minimum they would accept. Here, the worker's economic rent is $2,000, which is the difference between the $7,000 salary at Firm B and the $5,000 salary at Firm A.

Question 10

Because of their derived nature,resource markets are completely different from any other type of market studied by economists.

Accepted Answer

Resource markets, like labor markets where individuals sell their labor to firms, are analyzed by economists using similar principles as other markets, such as the principles of supply and demand, even though they involve the trading of resources rather than finished goods or services.

Question 11

If the price of a product increases,the demand for the resource used in producing that product decreases.

Accepted Answer

If the price of a product increases, it may lead to a decrease in demand for that product but it does not necessarily mean that the demand for the resource used in producing that product will decrease. In some cases, the demand for the resource may increase due to increased production of the product or due to the need for alternative resources.

Question 12

Suppose output of a firm hiring workers in a competitive labor market increases by three units when an additional worker is hired.This firm will hire more laborers if the market price of its product is $4 and the wage rate is $9.[Hint: Marginal revenue product of a resource is equal to the product of marginal product of the resource and the marginal revenue of the firm.]

Accepted Answer

The marginal revenue product (MRP) of labor can be calculated as MRP of labor = Marginal product of labor * Marginal revenue. Here, the given information is that the output increases by three units when an additional worker is hired. Hence the marginal product of labor is 3 units. The marginal revenue of the firm is given as $4. Therefore the MRP of labor is 3 * $4 = $12. If the wage rate is $9, which is less than MRP, the firm will hire more workers. Hence the statement is true.

Question 13

Transfer earnings of a factor is equal to its:

Accepted Answer

Transfer earnings of a factor is equal to its opportunity cost, which refers to the earnings that the factors of production could have earned in their next-best alternative use. Therefore, the best choice is E, opportunity cost.

Question 14

Households' expenditure on goods and services are sources of revenue for the firms.

Accepted Answer

Households spend money on goods and services, and this spending provides revenue for firms.

Question 15

A market is classified as a monopsony will arise when there is only one seller of the product.

Accepted Answer

A monopsony occurs when there is only one buyer of a product or service in a market, not one seller.

Question 16

If the labor market is perfectly competitive the wage rate will be less than the marginal revenue product of labor.

Accepted Answer

The answer of If the labor market is perfectly competitive...

Question 17

If the marginal factor cost is greater than the marginal revenue product of a resource,the producer can increase profits by laying off some units of the resource.

Accepted Answer

If the marginal factor cost (the cost of employing an additional unit of a resource) is greater than the marginal revenue product (the additional revenue generated by employing one more unit of the resource), it implies that the cost of employing the resource is not justified by the revenue it generates. Therefore, by laying off some units of the resource, the producer can reduce costs without proportionately reducing revenue, thereby potentially increasing profits.

Question 18

If a person is earning $80,000 per year as a dentist and could earn at most $45,000 per year doing something else,his transfer earnings are ____,whereas his economic rent is ____.

Accepted Answer

Transfer earnings are the earnings that a factor of production (in this case, the person's labor) could receive in its next best alternative use, which is $45,000. Economic rent is the difference between what a factor is actually earning and what it could earn in the next best alternative, which is $80,000 - $45,000 = $35,000.

Question 19

The negative slope of the demand curve of a resource indicates an inverse relationship between the price of the resource and the quantity demanded.

Accepted Answer

The negative slope of a demand curve means that as the price of the resource increases, the quantity demanded decreases. This is an inverse relationship.

Question 20

A monopsonist firm faces a negatively sloped marginal factor cost curve.

Accepted Answer

The answer of A monopsonist firm faces a negatively sloped...

Quiz 14: Resource Markets