Question 1

If the price of a competitive firm's output increases,the firm responds in the short run by demanding more labor.

Accepted Answer

The firm wishes to sell more output and can do so only by hiring more labor.

Question 2

Explain why a decrease in an input price causes less of an increase in the quantity demanded of the factor if we assumed that product price remained constant.

Accepted Answer

The answer of Explain why a decrease in an input...

Question 3

Suppose there are profit maximizing,competitive buyers and sellers of labor in an industry,and the amount of capital is fixed for each firm.Explain under what condition the output price will equal the wage rate.

Accepted Answer

The answer of Suppose there are profit maximizing,competitive buyers and...

Question 4

If workers suddenly decide to value more their leisure time than before,this

Accepted Answer

When workers value their leisure time more, they are less willing to work. This decreases the labor supply, causing the labor supply curve to shift to the left. As a result, wages increase and less workers are hired.

Question 5

For a monopoly,the value of the next worker equals

Accepted Answer

For a monopoly, the value of the next worker equals the marginal revenue product of labor (MRPL), which is calculated as the marginal product of labor (MPL) times the marginal revenue (MR), hence MR * MPL.

Question 6

A firm faces competitive markets for its inputs and its output.Its marginal revenue product of labor

Accepted Answer

If the firm faces competitive markets for both its inputs and outputs, then the wage rate it pays for labor will be determined by the labor market, and its output price will be determined by the product market. Therefore, if the price of the firm's output increases, its marginal revenue product of labor (MRPL) will also increase. This is because the firm can sell more output at a higher price, which creates a greater demand for labor and increases the value of each additional unit of labor. Thus, MRPL is increasing in the output price.

Question 7

During the Black Plague,capital became worthless.What can explain this?

Accepted Answer

Capital's marginal product fell because there was a significant reduction in the labor force due to the high mortality rate from the Black Plague. With fewer workers available to utilize the capital (machinery, tools, buildings, etc.), the productivity and value of capital decreased.

Question 8

XYZ Co.operates in a competitive market.Its production function is q = L^αK^β.The exponents,α and β,are both less than 1.The firm's capital is fixed,and it takes the wage and price as given.Derive the firm's short-run demand for labor as a function of K,w,and p.How does the firm react to an increase in the wage rate?

Accepted Answer

The answer of XYZ Co.operates in a competitive market.Its production...

Question 9

After Hurricane Katrina destroyed much of the infrastructure of the United States Gulf Coast,

Accepted Answer

The answer of After Hurricane Katrina destroyed much of the...

Question 10

How does a competitive firm's demand for labor react to a specific tax on each unit of output it sells?

Accepted Answer

The answer of How does a competitive firm's demand for...

Question 11

Why is the short-run demand curve for labor downward sloping?

Accepted Answer

The answer of Why is the short-run demand curve for...

Question 12

Which of the following labor markets is more likely to be competitive?

Accepted Answer

Receptionist jobs are more common and require a set of skills that many people possess, making this labor market more competitive due to a larger supply of potential workers. In contrast, the markets for singers, soccer players, and sculptors are less competitive due to the unique, specialized talents required and the smaller number of positions available.

Question 13

A monopoly's demand curve for labor

Accepted Answer

A monopoly has the ability to affect the wage rate and chooses to hire fewer workers at a lower wage rate. This means that their demand for labor is lower than that of a competitive market, resulting in a downward-sloping demand curve for labor.

Question 14

A firm faces competitive markets for its inputs and its output.At the profit maximizing level of output,its marginal cost is $10 and the wage paid is $2.If the MPL = L^-0.5,how many workers will be hired by the firm?

Accepted Answer

The answer of A firm faces competitive markets for its...

Question 15

XYZ Co.operates in a competitive market.Its marginal product of labor is 1/L,and it takes the wage and price as given.Derive the firm's short-run demand for labor as a function of w and p.How much labor will the firm hire if w = 2 and p = 10?

Accepted Answer

The answer of XYZ Co.operates in a competitive market.Its marginal...

Question 16

If a firm pays its workers $10 per hour,the marginal product of labor is 5 units per hour,and the price of the firm's product is $15 per unit,what is the price elasticity of demand facing the firm?

Accepted Answer

The answer of If a firm pays its workers $10...

Question 17

For a competitive firm the marginal revenue product of labor is usually downward sloping.

Accepted Answer

The marginal revenue product equals the marginal product multiplied by the constant price.The marginal product of labor is usually downward sloping due to diminishing marginal returns.

Question 18

To derive the labor market demand curve,the labor demand curves for each firm in the output market of interest are summed.

Accepted Answer

The labor demand curve for each output market are determined and summed.

Question 19

If the competitive firm maximizes profit by selecting labor rather than output,it will earn greater economic profit.

Accepted Answer

Whether the firm maximizes profit by selecting output or labor,the resulting profit is the same.Since MC = w/MP,setting MC = p is the same as setting w = p ∗ MP.

Question 20

A firm uses labor and capital in its production process,and it faces competitive markets for its inputs and output.The firm's long-run labor demand curve

Accepted Answer

In the long run, a firm has more flexibility to adjust its inputs and production process than in the short run. Therefore, the firm's long-run labor demand curve is typically flatter than its short-run labor demand curve. This means that in the long run, the firm can substitute capital for labor more easily, so a given change in the wage rate will lead to a smaller change in the quantity of labor demanded.

Quiz 15: Factor Markets