Question 1

For a snow-removal business,the capital stock would include inputs such as snow blowers and shovels.

Accepted Answer

Capital stock refers to the physical inputs used in production, such as equipment and machinery. Snow blowers and shovels are examples of such inputs used in a snow-removal business.

Question 2

Describe the difference between the purchase price of capital and the rental price of capital.If you know the value of marginal product from the flow of capital services,how would you determine the market price for the capital stock?

Accepted Answer

The answer of Describe the difference between the purchase price...

Question 3

In the 1980s,the dangerous Ebola virus entered the United States through contaminated monkeys that were imported for use in medical experiments.Suppose this virus had not been contained but had spread to the general population.Assume that the virus is lethal in half of the people who are exposed to it.Describe the resulting effect on labor productivity.

Accepted Answer

The answer of In the 1980s,the dangerous Ebola virus entered...

Question 4

When a firm decides to retain its earnings instead of paying dividends,the stockholders necessarily suffer.

Accepted Answer

Retaining earnings can potentially benefit stockholders in the long run through increased earnings and growth opportunities for the company, but it may not provide immediate income in the form of dividends. Ultimately, the impact on stockholders depends on the individual company's financial situation and the market's perception of the decision to retain earnings.

Question 5

Firms pay out a portion of their earnings in the form of interest and dividends,and those payments are a portion of the economy's capital income.

Accepted Answer

Firms do pay out a portion of their earnings in the form of interest and dividends, and these payments count as a part of the economy's capital income.

Question 6

A recent flood in the Midwest has destroyed much of the farmland that lies in fertile regions near the rivers.Describe the effect of the flood on the marginal productivity of land,labor,and capital.How would the flood affect the price of inputs? Provide some examples.

Accepted Answer

The answer of A recent flood in the Midwest has...

Question 7

If the output price of a product rises,the demand for capital will increase,raising the rental price of capital.

Accepted Answer

When the output price of a product rises, firms are willing to pay more for capital inputs in order to increase production and profit. This increases the demand for capital, which raises the rental price of capital.

Question 8

The marginal product of land depends on the quantity of land that is available.

Accepted Answer

The marginal product of land refers to the additional output that can be produced by using one additional unit of land, while holding other inputs constant. As more land is used, the marginal product of land is eventually subject to diminishing returns, meaning that each additional unit of land will result in a smaller increase in output. Therefore, the quantity of land available does affect the marginal product of land.

Question 9

Capital income does not include income paid to households for the use of their capital.

Accepted Answer

Capital income includes income paid to households for the use of their capital, such as interest, dividends, and rent from real estate.

Question 10

The rental price of capital is the price a person pays to own the capital indefinitely.

Accepted Answer

The rental price of capital is the price a person pays to use the capital for a specific period of time, not to own it indefinitely.

Question 11

Describe the difference between a diminishing marginal product of labor and a negative marginal product of labor.Why would a profit-maximizing firm always choose to operate where the marginal product of labor is decreasing (but not negative)?

Accepted Answer

The answer of Describe the difference between a diminishing marginal...

Question 12

Suppose the supply of capital decreases.As a result,the quantity of capital used in production and the rental price of capital will both fall.

Accepted Answer

When the supply of capital decreases, the quantity of capital used in production might fall, but the rental price of capital will increase due to the reduced supply and unchanged demand, leading to higher prices for the use of capital.

Question 13

Explain how a firm values the contribution of workers to its profitability.Would a profit-maximizing competitive firm ever stop increasing employment as long as marginal product is rising? Explain your answer.

Accepted Answer

The answer of Explain how a firm values the contribution...

Question 14

A change in the supply of any one factor alters the earnings of all the other factors.

Accepted Answer

When the supply of any one factor of production changes, it affects the prices of other factors too. For instance, an increase in the supply of capital would drive down the cost of borrowing or interest rates, which would affect the wages paid to labor too. Similarly, an increase in the supply of labor would reduce wages, which would affect rent and profits too. Thus, a change in the supply of one factor can lead to changes in the earnings of all other factors in the market.

Question 15

Suppose an influenza pandemic were to significantly decrease the population of a country.We would predict a decrease in the marginal product of land in that country.

Accepted Answer

The answer of Suppose an influenza pandemic were to significantly...

Question 16

Describe the process by which the market for capital and the market for land reach equilibrium.As part of your description,elaborate on the role of the stock of the resource versus the flow of services from the resource.

Accepted Answer

The answer of Describe the process by which the market...

Question 17

Capital owners are compensated according to the value of the marginal product of that capital.

Accepted Answer

This is the basic principle of marginal productivity theory, which states that factors of production (such as capital) are compensated according to the value they add to the production process.

Question 18

Using the theory of wage determination,explain why wages in developing countries.where levels of capital are small,are typically quite low.

Accepted Answer

The answer of Using the theory of wage determination,explain why...

Question 19

In 2008,the total income of all U.S.residents was about

Accepted Answer

According to data from the Bureau of Economic Analysis, the total income of all U.S. residents in 2008 was approximately $14 trillion. Therefore, option D is the correct choice. Options A and B are too low, while option C is too high.

Question 20

The demand curve for each factor of production equals the value of the marginal product of that factor.

Accepted Answer

This is known as the "value of marginal product" (VMP) theory, which states that the demand for a factor of production depends on its marginal product (the extra output produced by an additional unit of the factor) and the price of the output. If the value of the marginal product is high, the demand for the factor will be high, and vice versa. Therefore, the demand curve for each factor of production is determined by the VMP of that factor.

Quiz 18: The Markets for the Factors of Production