Deck 19: The Markets for the Factors of Production

Question 1

Assuming the standard criteria for profit maximisation, a competitive firm's final good price will equal the wage paid to workers divided by their marginal product.

Answer 1

True

Question 2

In a competitive labour market, wages will adjust to equal the marginal product of labour.

Answer 2

True

Question 3

The supply of labour in any one market depends on the opportunities available in other markets.

Answer 3

True

Question 4

A competitive profit-maximising firm hires workers up to the point where the wage equals the price of the final good.

Question 5

A decrease in the price of milk products will not have any effect on the wages of dairy-farm workers.

Question 6

An upward sloping supply curve for labour means that to get workers to work, more wages must increase.

Question 7

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

Question 8

If a factor market is competitive, then the product market must also be competitive.

Question 9

The quantity available of one factor of production can affect the marginal product of other factors.

Question 10

The demand for apple pickers is derived from the demand for apples.

Question 11

Increases in productivity are not responsible for increased standards of living in Australia.

Question 12

Movements of workers from country to country can cause shifts in the labour supply curve.

Question 13

The labour supply curve reflects how workers' decisions about the labour-leisure trade-off respond to changes in the opportunity cost of leisure.

Question 14

The value of the marginal product curve is the labour demand curve for a competitive, profit-maximising firm.

Question 15

Productivity is low in most Asian countries.

Question 16

Suppose there is a profit-maximising competitive firm. If it increases the number of workers it employs it will notice that the value of the marginal product of labour falling.

Question 17

The demand curve for each factor reflects the marginal productivity of that factor.

Question 18

When a firm decides to retain its earnings instead of pay dividends, the shareholders are not being rewarded.

Question 19

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

Question 20

The wage rate both balances the supply and demand for labour and equals the value of the marginal product of labour.

Question 21

The factors of production are best defined as the:

A) the factual description of the production process
B) the labour used to produce goods and services
C) wages paid to the workforce
D) inputs used to produce goods and services

Question 22

Which of the following best illustrates the concept of 'derived demand'?

A) an increase in the wages of abalone fishers will lead to an increase in the demand for fishing boats in boat factories
B) an abalone farm's decision to supply more abalone results from a decrease in the demand for station abalone
C) an increase in the price of fuel will lead to an increase in the demand for smaller fishing boats
D) an abalone fishing firm's decision to supply more abalone will lead to an increase in the demand for abalone fishers

Question 23

A massive power surge wipes out half of all computers in Melbourne. This will result in a lower demand for office workers, increasing their marginal product of labour and, hence, raising the wage of office workers.

Question 24

Changes in the capital stock will often lead to changes in wages.

Question 25

The value of the marginal product of any input is equal to the marginal product of that input multiplied by the market price of the output.

Question 26

In the Australian economy most labour services are:

A) final goods
B) inputs into other goods
C) imports
D) outputs

Question 27

For any given quantity of labour, an increase in price will cause the marginal product of labour to increase.

Question 28

Labour markets are different from most product markets because labour demand is:

A) horizontal
B) upward-sloping
C) derived
D) based on social needs

Question 29

A competitive, profit-maximising firm hires workers until marginal product equals zero.

Question 30

When labour supply increases, the equilibrium wage rises and employment increases.

Question 31

The Gippsland region in Victoria produces a lot of potatoes from many potato farms. Suppose the sole input into the production of potatoes is the labour required to harvest. Which of the following statements regarding market structure do you think is most likely the case?

A) the market for potatoes is competitive and the supply of potato pickers is a monopoly
B) the market for potatoes is competitive and the market for potato pickers is competitive
C) the market for potatoes is a monopoly and the market for potato pickers is competitive
D) the market for potatoes is a monopoly and the supply of potato pickers is a monopoly

Question 32

If land used for forestry loses its fertility, then over time the value of the marginal product of land will fall and the rental price on that land will fall.

Question 33

The basic purpose of the theory of factor markets is to explain how income is distributed among factors of production.

Question 34

The purchase price of capital is the price a person pays to own that factor of production indefinitely, while the rental price of capital is the price paid to use capital for a limited time period.

Question 35

A firm's willingness to pay for a factor of production ultimately depends on the demand for the goods the input is used to produce. This type of demand is called:

A) ultimate demand
B) derived demand
C) labour demand
D) supplied demand

Question 36

An example of labour in the fishing industry would be the:

A) trawling time saved by using motorised winches
B) trawling time saved by employing larger nets
C) increase in catch from better fish-finding technology
D) time that a fisher takes to sort the catch

Question 37

The economy's stock of equipment and structures is best described as?

A) aggregate stock
B) aggregate structures
C) capital
D) shares and derivatives

Question 38

During the Black Death, which occurred in Europe in the 1340s, with fewer workers available to farm the land, employers were able to choose better skilled labour to employ.

Question 39

The demand for a factor of production is a derived demand. Derived demand means that:

A) a firm's demand for a factor of production is derived from its supply decision
B) the firm's demand can be mathematically derived
C) both the demand for and supply of factors of production is derived from an external market
D) the demand curve for a good is derived from the factors of production used to produce that good

Question 40

Rent, interest and profit are all forms of income paid to the owners of:

A) aggregate stock
B) aggregate demand
C) land and capital
D) long-term inventory

Question 41

A competitive, profit-maximising firm hires workers until:

A) unemployment rates are zero
B) the value of the marginal product equals the wage
C) marginal product equals zero
D) marginal revenue equals zero

Question 42

In labour markets, the supply curve represents:

A) the supply of workers
B) the supply of a firm's product
C) the equilibrium wage rate
D) the marginal profit of labour

Question 43

The value of the marginal product curve gets its shape from:

A) diminishing marginal product
B) increasing marginal product
C) tight labour markets
D) a surplus of workers

Question 44

The marginal product of a worker is equivalent to:

A) the total amount of output produced by all workers combined
B) the amount of output produced by the average worker
C) the amount of output an individual worker contributes to the total output of a firm
D) none of the above

Question 45

A worker's contribution to a firm's revenue is measured directly by the worker's:

A) value of marginal product
B) marginal product multiplied by his/her wage
C) marginal product minus his/her wage
D) contribution to output

Question 46

The value of the marginal product of labour (VMPL) will be:

A) higher than the marginal product of labour
B) lower than the marginal product of labour
C) equal to the marginal product of labour
D) we cannot say without more information

Question 47

The hiring decision of a profit-maximising firm is directly linked to the:

A) relationship between labour inputs and output described by the production function
B) value of leisure time to a worker
C) number of workers available for work
D) marginal satisfaction that a worker receives from labour

Question 48

A firm's demand for labour is derived out of:

A) profit maximisation
B) cost minimisation
C) revenue maximisation
D) the price of a good

Question 49

When labour is the only input a firm uses, the marginal cost of a unit of output can be defined as:

A) wage / (marginal product of labour)
B) (marginal product of labour) / wage
C) marginal revenue - wage
D) marginal product of labour - wage

Question 50

When a production function exhibits a marginal product of labour that is diminishing (but positive):

A) output declines as more workers are employed
B) the firm should never increase its employment
C) output increases, but at a decreasing rate as more workers are employed
D) the firm cannot be maximising profit

Question 51

Diminishing marginal product is closely related to:

A) increasing marginal cost
B) diminishing marginal cost
C) diminishing total cost
D) none of the above

Question 52

The value of the marginal product of any input is equal to the marginal product of that input multiplied by the:

A) marginal cost of the output
B) change in total profit
C) market price of the output
D) additional revenue

Question 53

A competitive, profit-maximising firm labour demand curve is equal to the:

A) the total output curve divided by wages
B) average level of demand for the final product
C) the production function
D) the value of marginal product curve

Question 54

If an increase in the number of workers leads to all workers becoming less productive, this situation is called:

A) diminishing profitability
B) diminishing marginal product
C) increasing marginal product
D) lessening production

Question 55

When deciding how much labour to hire, a profit-maximising firm should hire workers until:

A) marginal profit equals the wage rate
B) marginal revenue equals marginal profit
C) marginal product equals the wage rate
D) marginal profit is zero

Question 56

When a profit-maximising firm makes a decision to employ a worker, that decision is based on:

A) the familial relationship between the employer and the employee
B) how much output the worker can produce
C) the individual contribution that the worker makes to the profit of the firm
D) the total output produced by the firm

Question 57

The value of the marginal product of labour curve is:

A) S-shaped
B) upward-sloping
C) downward-sloping at the start, then upward-sloping at the middle
D) downward-sloping

Question 58

The value of the marginal product of labour is equal to the change in:

A) total revenue with the addition of the last worker
B) total cost with the addition of the last worker
C) total profit with the addition of the last worker
D) marginal cost with the addition of the last worker

Question 59

Assume labour is the only factor of production in a competitive product market. If there are increasing returns to scale then:

A) marginal product of labour is constant
B) marginal product of labour is decreasing
C) marginal product of labour is increasing
D) we cannot say without more information

Question 60

To maximise profit, a competitive firm hires workers up to the point where the:

A) marginal product and marginal cost curves intersect
B) value of the marginal product and marginal revenue curves intersect
C) value of the marginal product and the wage curves intersect
D) wage and the total revenue curves intersect

Question 61

If the price of bread falls, what will happen to the demand curve for bakers?

A) it will shift to the right
B) it will shift to the left
C) it will shift down
D) it will remain unchanged; price changes do not shift demand curves

Question 62

What happens to the labour supply curves in both countries when New Zealand workers immigrate to the Australia?

A) labour supply increases in Australia and decreases in New Zealand
B) labour supply increases in New Zealand and decreases in Australia
C) labour supply decreases in New Zealand and decreases in Australia
D) labour supply increases in Australia and increases in New Zealand

Question 63

When a labour market experiences a surplus of labour, there is downward pressure on:

A) wages
B) the marginal productivity of labour
C) final product price
D) the demand for labour

Question 64

Which of the following factors would lead to an increase in the supply of labour?

A) a country experiencing an increase of immigrant labour
B) the price of a firm's final product increasing
C) the wage rate increasing
D) a country tightening border restrictions to limit immigrant labour

Question 65

Which of the following events would cause an increase in the labour supply curve?

A) a lower retirement age
B) more married women deciding to work
C) fewer married men deciding to work
D) tighter restrictions on immigration policy

Question 66

A profit-maximising competitive firm that experiences diminishing marginal product of labour must also be experiencing:

A) an upward-sloping demand for labour
B) a horizontal demand for labour
C) a downward-sloping demand for labour
D) a diminishing demand for the output

Question 67

Rocchetta Industries manufactures and supplies bottled water in Mexico. As a result of a contamination of water supplies at many of Mexico's resort communities, the demand for bottled water has increased. According to the information provided, we would expect the value of marginal product for Rocchetta Industries workers to:

A) rise
B) fall
C) be offset by a decrease in wages
D) be unaffected by a rise in demand for bottled water

Question 68

A competitive firm will hire workers up to the point at which the value of the marginal product equals the:

A) wage
B) price
C) total revenue
D) total cost

Question 69

Jack the physical therapist invents a new wrist-brace that allows assembly line workers to work without suffering the effects of carpal-tunnel syndrome, thus making the workers more productive. The demand for assembly line workers will:

A) fall
B) rise
C) remain unchanged
D) fall as long as price exceeds marginal cost

Question 70

Profit-maximising competitive firms hire labour until marginal cost rises to equal:

A) average wages
B) marginal product
C) the minimum wage
D) the price

Question 71

The profit-maximising employment rule for a competitive firm ensures that:

A) output price will equal marginal cost
B) revenue will be maximised
C) total costs will be minimised
D) price will always exceed cost of production

Question 72

If one observes a profit-maximising firm decreasing employment, it is possible to infer that the:

A) wage exceeds the value of the marginal product
B) firm is losing market share
C) firm is not likely to be minimising losses
D) value of the marginal product exceeds the market wage

Question 73

When the price of computer software rises, the value of the marginal product of computer programmers will:

A) fall
B) rise
C) remain unchanged
D) fall or rise, either is possible

Question 74

Suppose that a profit-maximising firm is increasing employment. A likely reason for this is that the:

A) wage exceeds the value of the marginal product
B) marginal product is rising
C) value of the marginal product exceeds the wage
D) firm is increasing its market share

Question 75

Bob has been a private school caretaker for 30 years. For practical purposes, assume that Bob's productivity never changes. What then, if anything, will decrease the value of the labour that Bob performs?

A) a decrease in the productivity of the other janitors
B) a decrease in janitorial unemployment rates
C) a decrease in the tuition fees
D) all of the above

Question 76

Which of the following could decrease labour demand?

A) an increase in migrant workers
B) a decrease in demand for the final product produced by labour
C) a decrease in the labour supply
D) an increase in the marginal productivity of workers

Question 77

A profit-maximising employer will always hire up to the point where the:

A) marginal product is just starting to decline
B) marginal product of labour is just starting to rise
C) value of marginal product is just equal to market wage
D) marginal value of output exceeds marginal cost

Question 78

What happens to the labour supply in the pear-picking market when the apple pickers get a wage rise?

A) the labour supply will fall
B) the labour supply will stay constant until the wages paid to pear pickers change
C) the invisible hand of the market will cause an increase in supply
D) it may fall or rise, depending on the price of pears

Question 79

Which of the following could increase labour demand?

A) a decrease in final product price
B) an increase in the amount of capital available for workers to use
C) a decrease in the marginal productivity of workers
D) all of the above

Question 80

Suppose that a change to early retirement laws leads to a decrease in labour supply. This means that:

A) the marginal productivity of workers always decreases
B) profit-maximising firms increase employment
C) wages decrease as long as labour demand is downward-sloping
D) wages increase as long as supply is downward-sloping