Deck 14: Markets for Factor Inputs

Question 1

Under what circumstances are the marginal expenditure for an input and the average expenditure always equal? Where there is a

A) competitive buyer.
B) competitive seller.
C) monopoly buyer.
D) monopoly seller.

Answer 1

A

Question 2

Scenario 14.1:
You are the manager of a firm producing green chalk. The marginal product of labor is:
MP_L = 24L^-1/2
Suppose that the firm is a competitor in the green chalk market. The price of green chalk is $1 per unit. Further suppose that the firm is a competitor in the labor market. The wage rate is $12.00 per hour.
Given the information in Scenario 14.1, what is the marginal revenue product of labor?

A) 0.5L^-1/2
B) 2L^-1/2
C) 12L^-1/2
D) 24L^-1/2

Answer 2

D

Question 3

In the competitive output market for good Q, the marginal revenue product for an input X can be expressed as

A) MP_X / TR_Q.
B) MP_Q MR_X.
C) AP_X MR_Q.
D) MP_X * P_Q

Answer 3

MP_X * P_Q

Question 4

If the market for labor is perfectly competitive, the profit maximizing level of labor occurs where

A) MRP_L < W (the wage).
B) MRP_L = P (the output price).
C) MRP_L just exceeds W.
D) MRP_L = W.
E) none of the above

Question 5

An increase in technology that enhances labor productivity will likely result in:

A) a decrease in labor employment and an increase in the wage rate.
B) an increase in labor employment and an increase in the wage rate.
C) a decrease in labor employment and a decrease in the wage rate.
D) an increase in labor employment and a decrease in the wage rate.
E) employers using less labor and more capital while the wage effect is unknown.

Question 6

When compared to the demand curve for only one variable input, the demand curve for a factor input when several inputs are variable is

A) less elastic.
B) more elastic.
C) vertical.
D) horizontal.

Question 7

If leisure is a normal good, then the income effect of a decrease in wage will

A) decrease the number of hours worked.
B) increase the number of hours worked.
C) decrease the number of leisure hours.
D) increase the sum of leisure plus hours worked.

Question 8

Other things being equal, the marginal revenue product (MRP) curve for a competitive seller

A) lies below the MRP curve for a monopolist.
B) is identical to the MRP curve for a monopolist.
C) lies above the MRP curve for a monopolist.
D) is upward sloping whereas a monopolist has a downward sloping MRP curve.

Question 9

A firm purchases a factor of production in a competitive market. At the current purchase rate the MRP of the factor is greater than the marginal expenditure for the factor. Thus, the firm

A) can increase profit by reducing the employment of the factor of production.
B) is now maximizing profit.
C) should not use this factor of production because it has no potential in generating a profit.
D) can increase profit by expanding the employment of the factor of production.

Question 10

The marginal revenue product can be expressed as the

A) additional revenue received from selling one more unit of product.
B) increment to revenue received from one additional unit of input hired.
C) marginal physical product of an input times the average revenue received from the sale of the product.
D) average physical product of the input times the marginal revenue received from the sale of the final product.

Question 11

When the factor market is purely competitive, the firm's average expenditure curve for a factor of production is

A) upward sloping and to the right of the marginal expenditure curve.
B) downward sloping and to the right of the marginal expenditure curve.
C) identical to the marginal expenditure curve.
D) downward sloping and to the left of the marginal expenditure curve.

Question 12

Assume that labor and capital are complements in production and that the wage declines. Which of the following statements best describes the adjustment in the use of labor?

A) Adjustments in labor use are not influenced by adjustments in capital use.
B) The MRP_L curve shifts downward in this case.
C) More labor is used both because of the reduced wage and increased use of capital.
D) Changes in labor use are indeterminate because the reduced wage and reduced use of capital have opposite influences on the use of labor.

Question 13

If an individual's labor supply curve is backward bending, then

A) the income effect associated with a higher wage is greater than the substitution effect.
B) the substitution effect associated with a higher wage is greater than the income effect.
C) the substitution effect associated with a higher wage encourages more leisure.
D) A and C
E) B and C

Question 14

If only one firm in an industry could take advantage of a reduced wage and all other firms continue paying the old wage, how would one best describe the one firm's reaction to this reduced wage assuming labor is the only variable input? The marginal revenue product of labor curve

A) would remain unchanged, and the firm would hire more labor at the lower wage.
B) shifts to the left, and the firm hires more labor at the lower wage on the new curve.
C) shifts to the right, and the firm hires more labor at the lower wage on the new curve.
D) shifts to the left, and the firm hires less labor at the lower wage on the new curve.
E) shifts to the right, and the firm hires less labor at the lower wage on the new curve.

Question 15

The marginal revenue product of labor is equal to

A) MP_L P.
B) MP_L / P.
C) MP_L * MR.
D) MP_L / MR
E) MR / MP_L

Question 16

The substitution effect of a decrease in the wage will

A) decrease leisure, regardless of whether leisure is a normal or inferior good.
B) increase leisure, regardless of whether leisure is a normal or inferior good.
C) increase leisure only if leisure is a normal good.
D) decrease leisure only if leisure is a normal good.

Question 17

Assume that as the wage rate rises a worker's substitution effect for leisure is larger than the income effect. We can conclude that in this region, the worker's

A) labor supply curve will be backward bending.
B) labor supply curve will have the usual upward slope.
C) labor supply curve will be completely inelastic.
D) supply curve will be horizontal.

Question 18

Scenario 14.1:
You are the manager of a firm producing green chalk. The marginal product of labor is:
MP_L = 24L^-1/2
Suppose that the firm is a competitor in the green chalk market. The price of green chalk is $1 per unit. Further suppose that the firm is a competitor in the labor market. The wage rate is $12.00 per hour.
Given the information in Scenario 14.1, how much labor will be hired to maximize profit?

A) 1/16
B) 1/2
C) 1
D) 4

Question 19

A firm should hire more labor when the marginal revenue product of labor

A) equals the wage rate.
B) exceeds the wage rate.
C) is less than the wage rate.
D) Any of these can be true.
E) None of these are true.

Question 20

What can account for the negative slope of the marginal revenue product curve?

A) Diminishing marginal utility
B) Diminishing marginal returns
C) Monopsony power
D) All workers eventually begin slacking.
E) none of the above

Question 21

Labor is typically assumed to be the only variable input in very short-run production systems, and the number of variable inputs increases as we lengthen our planning horizon from short run to long run. What happens to the labor demand curve as we move from short run to long run?

A) Demand curve becomes less elastic
B) Demand curve elasticity does not change
C) Demand curve becomes more elastic
D) Demand curve becomes upward sloping

Question 22

Use the following statements to answer this question:
I) Under profit maximization, the quantity of labor used in production is optimal if MR = w/MP_L.
II) The expression MR = w/MPL implies that the revenue earned from the last unit of output produced equals the marginal cost of the last unit of output.

A) I and II are true.
B) I is true and II is false.
C) II is true and I is false.
D) I and II are false.

Question 23

The Acme Company is a perfect competitor in its input markets and its output market. Its average product of labor is at its maximum and equals 30. The marginal revenue product of labor is $300. The price of its output

A) is $0.10.
B) is $10.
C) is $9,000.
D) cannot be determined without more information.

Question 24

Let P be the output price for a particular good. Why is the value P*MP_L greater than MRP_L for a monopolist?

A) The monopolist is not as technically efficient as firms operating under perfect competition.
B) The monopolist hires less labor, so MP_L is higher under a monopoly than under perfect competition.
C) The monopolist sets a price that is higher than MR.
D) A and C are correct.
E) B and C are correct.

Question 25

The marginal product of labor for Acme, Inc. is 15. The average product of labor is 25, and the price of labor is $10. Assuming that Acme, Inc. is a competitor in its output and input markets, the marginal revenue product of labor:

A) is $10.
B) is $150.
C) is $250.
D) is $375.
E) cannot be determined with the information provided.

Question 26

The industry demand curve for labor is the

A) horizontal sum of individual firm labor demand curves.
B) vertical sum of individual firm demand curves.
C) representative firm's demand curve multiplied by the number of firms.
D) none of the above

Question 27

Electric power utility companies use various fuel sources (e.g., coal, natural gas, nuclear) to generate electricity for their customers. What happens to the demand for natural gas used to generate electricity as we move from a short-run planning horizon to a long-run planning horizon? Why?

A) Demand becomes more inelastic over time because the other fuel sources become more scarce, so there are fewer options available for electric power utilities in the long run.
B) Demand becomes more inelastic over time because all of the power generation plants tend to choose the same technology, which makes the industry less responsive to prices in the long run.
C) Demand becomes more elastic over time because the electric plant's technology becomes obsolete, and the power company has less flexibility to adjust to changes.
D) Demand becomes more elastic over time because the power companies have more options available and can adopt new generating technologies or substitutes for natural gas over the long run.

Question 28

Clarke Mementos manufactures small figurines that they sell to retailers around the country. Clarke sells the figurines for $5.00 each, a price the firm considers given. Clarke's production function is given by the expression:
Q = 60L - 0.5L²,
where Q = number of figurines per day, and L = number of skilled workers per day. Based on this production function, the average and marginal products of labor are as follows:
AP = 60 - 0.5L MP = 60 - L
a. Write an expression for the firm's marginal revenue product.
b. Clarke currently pays $150 per day (including fringe benefits) for each of its skilled workers. How many workers should the firm employ?
c. Clarke's workers are highly skilled artisans with a great deal of job mobility. The firm's managers fear that they must increase the workers' total compensation to $200 per day to remain competitive. What impact would the wage increase have upon the firm's employment?

Question 29

If the firms in an industry could take advantage of a reduced wage, how would one best describe the firms' demand for labor? The MRP_L

A) schedule would remain unchanged, and the firms would hire more labor at the lower wage.
B) schedule would shift to the left and the firms would move down the new schedule.
C) schedule would shift to the right and the firms would move down the new schedule.
D) none of the above

Question 30

The Acme Company is a perfect competitor in its input markets and a monopolist in its output market. The marginal product of labor is 20 and the price of Acme's output is $10. For Acme Company, the marginal revenue product of labor is

A) less than $10.
B) $10.
C) $20.
D) less than $200.
E) $200

Question 31

The Acme Company is a perfect competitor in its input markets and its output market. Its average product of labor is 30, the marginal product of labor is 20, the price of labor is $20, and the price of the output is $5. For Acme Company, the marginal revenue product of labor

A) is $100.
B) is $150.
C) is $400.
D) is $600.
E) cannot be determined with the information provided.

Question 32

Figure 14.1
A consumer's original utility maximizing combination of income and leisure is shown in the diagram above as point A. After a wage increase, the consumer's utility maximizing combination changes to point C.
Refer to Figure 14.1. The substitution effect of the wage increase on the amount of hours of leisure is:

A) L₁ to L₀
B) L₁ to L₂.
C) L₀ to L₂.
D) L₀ to L₁.
E) none of the above

Question 33

Suppose labor and capital are variable inputs. The wage rate is $20 per hour, the marginal product of labor is 30 units, the rental rate of capital is $100 per machine hour, and the marginal product of capital is 150 units. If the wage rate declines to $15 per hour, the firm employs more labor and the marginal product of labor declines to 20 units. Assuming the rental rate of capital remains the same, what happens to the amount of capital used by the firm?

A) Decreases
B) Increases
C) No change
D) We do not have enough information to answer this question.

Question 34

Figure 14.2
A consumer's original utility maximizing combination of income and leisure is shown in the diagram above as point A. After a wage decrease, the consumer's utility maximizing combination changes to point C.
Refer to Figure 14.2. The substitution effect of the wage decrease on the amount of hours of leisure is:

A) L₁ to L₀.
B) L₀ to L₁.
C) L₁ to L₂.
D) L₂ to L₀.
E) none of the above

Question 35

The Acme Company is a perfect competitor in its input markets and a monopolist in its output market. Its average product of labor is 30, the marginal product of labor is 20, the price of labor is $20, and the price of the output is $5. For Acme Company, the marginal revenue product of labor

A) is $100.
B) is $150.
C) is $400.
D) is $600.
E) cannot be determined with the information provided.

Question 36

Suppose labor and capital are variable inputs. The wage rate is $20 per hour, the marginal product of labor is 30 units, the rental rate of capital is $100 per machine hour, and the marginal product of capital is 150 units. If the wage rate declines to $15 per hour, the firm employs more labor and the marginal product of labor declines to 20 units. Assuming the rental rate of capital remains the same, what is the marginal product of capital at the new optimal level of input usage?

A) 100 units
B) 133 units
C) 150 units
D) We do not have enough information to answer this question.

Question 37

Suppose a firm has one variable input, labor. Why is the MRP_L curve for a competitive firm above the MRP_L curve for a monopolist?

A) Without competition from other firms, monopolies are less efficient and the marginal product of labor is lower at each level of output.
B) Although the marginal product of labor may be the same under both market structures, the marginal revenue of the monopoly declines with output.
C) Monopolists have less incentive to invest in worker training and other methods for improving labor productivity, so the marginal product of labor is lower in the monopoly case.
D) none of the above

Question 38

Figure 14.2
A consumer's original utility maximizing combination of income and leisure is shown in the diagram above as point A. After a wage decrease, the consumer's utility maximizing combination changes to point C.
Refer to Figure 14.2. The income effect of the wage decrease on the amount of hours of leisure is:

A) L₀ to L₁.
B) L₀ to L₂.
C) L₁ to L₂.
D) L₂ to L₁.
E) none of the above

Question 39

Figure 14.1
A consumer's original utility maximizing combination of income and leisure is shown in the diagram above as point A. After a wage increase, the consumer's utility maximizing combination changes to point C.
Refer to Figure 14.1. The income effect of the wage increase on the amount of hours of leisure is:

A) L₀ to L₂.
B) L₀ to L₁.
C) L₁ to L₂.
D) L₂ to L₁.
E) none of the above

Question 40

In general, does the demand for labor become more or less elastic as we increase the number of other variable inputs used in a production process?

A) More elastic
B) No change in elasticity
C) Less elastic
D) We cannot answer this question without more information about the other inputs

Question 41

Under an infinitely inelastic supply of land, the economic rents to land ________ if the price of land doubles.

A) increase by less than 100%
B) double
C) increase by more than 100%
D) none of the above

Question 42

Firefighters are highly skilled workers who are typically employed by city governments. If a city reduces the wage rate paid to firefighters to be less than the equilibrium wage rate, what happens to the economic rents earned by the firefighters?

A) Increase
B) Decrease
C) Remain unchanged
D) Public employees like firefighters cannot earn economic rents

Question 43

Suppose the local market for legal services has an upward sloping supply curve, P_L = 150 + 0.0001Q_L where P_L is the price of legal services and Q_L is the number of hours of legal services. If the equilibrium price of legal services is $250 per hour, what is the aggregate economic rent earned by lawyers in this market?

A) $50,000
B) $1,000,000
C) $50,000,000
D) $100,000,000

Question 44

In a competitive labor market, the supply of labor curve is expressed as:
AE = $5 + 0.0025L,
where AE represents the average expenditure ($/unit) and L represents units of labor hired per unit of time. The demand for labor is based on the following expression:
MP = 5 - 0.001L,
where MP represents marginal product of labor. Revenue from the final good is $5 per unit sold in a competitive market.
a. Determine the equilibrium wage rate and labor employment rate.
b. Compute the economic rent earned by labor.

Question 45

What happens to the marginal revenue product curve of a factor as more of a complementary factor is hired?

A) It shifts to the left, because its marginal product decreases.
B) It shifts to the left, because its marginal product increases.
C) It shifts to the right, because its marginal product decreases.
D) It shifts to the right, because its marginal product increases.

Question 46

Suppose the labor market and all output markets are perfectly competitive. When the labor market is in equilibrium, the wage rate will:

A) be less than the marginal revenue product of labor.
B) equal the marginal revenue product of labor.
C) be greater than the marginal revenue product of labor.
D) None of the above is necessarily correct.

Question 47

Suppose the local market for legal services has an upward sloping supply curve, P_L = 150 + 0.0001Q_L where P_L is the price of legal services and Q_L is the number of hours of legal services. If the equilibrium price of legal services is $250 per hour and the average number of hours that a lawyer works per year is 2,500, what is the average economic rent earned per lawyer in this market?

A) $10,000
B) $20,000
C) $50,000
D) $1,000,000

Question 48

The table below shows a firm's output per day for zero through six workers.
Q L
0 0
46 1
84 2
114 3
136 4
150 5
156 6
The firm's demand and marginal revenue curves are:
P = 50 - 0.125Q MR = 50 - 0.25Q,
where Q = daily sales, and P = output price.
a. Determine the marginal product of labor for one through six workers.
b. Determine the firm's marginal revenue product.
c. How many workers should the firm hire if total wage costs including fringe benefits are $30 per hour? (Each worker is employed for eight hours per day.)

Question 49

Suppose the supply of farmland is infinitely inelastic and the demand for land is downward sloping but inelastic at the current equilibrium. If the supply curve shifts leftward (e.g., some farmland is permanently converted to other uses), what happens to the aggregate economic rents in this market?

A) Decrease
B) Increase
C) Remain the same
D) We do not have enough information to answer this question.

Question 50

Which of the following is NOT true about the supply of labor to the firm in a competitive labor market?

A) It is horizontal.
B) It is perfectly elastic.
C) It is equal to the marginal expenditure curve.
D) It is upward sloping.

Question 51

In a competitive labor market, with one variable factor, the supply of labor to the firm is

A) equal to the marginal expenditure curve.
B) equal to the demand curve for labor.
C) greater than the marginal expenditure curve.
D) equal to the marginal revenue product curve.

Question 52

Suppose the supply of land is infinitely inelastic and the demand for land is downward sloping but inelastic at the current equilibrium. If the supply curve shifts rightward (e.g., previously unusable land is cleared for production), what happens to the aggregate economic rents in this market?

A) Decrease
B) Increase
C) Remain the same
D) We do not have enough information to answer this question.

Question 53

Suppose a competitive industry produces output, Q, using some input, i, where the price of the output is P_Q and the input price is P_i. Efficient use of resources requires that

A) MRP_i = MP_i.
B) MRP_i = Mp_i/P_Q.
C) MRP_i = MP_i P_Q.
D) MRP_i = P_i.

Question 54

Suppose the supply and demand of land for natural gas extraction are imperfectly elastic. Given that coal is a potential substitute for natural gas in energy applications, a change in the price of coal may shift the demand curve for natural gas. What happens to the economic rents assigned to land on which natural gas is extracted if the price of coal declines?

A) Rents increase
B) Rents are positive and remain unchanged
C) Rents decrease
D) Rents are zero before and after the change

Question 55

Use the data in the table below to answer the following questions about a firm.
Units of Units of Total Marginal Output
Input X Input Y Product Product of X Price
0 25 0 $10
1 25 2 10
2 25 7 10
3 25 14 10
4 25 20 10
5 25 23 10
6 25 24 10
a. Complete the table by calculating the marginal product of input X.
b. Compute the marginal revenue produce of input X.
c. If the price of input X were $30 per unit, how many units should the firm use per unit of time to maximize profit? Explain why profit is maximized.

Question 56

Under an upward sloping supply curve for land, the economic rents to land ________ as the demand for land shifts rightward.

A) decrease
B) increase
C) remain the same
D) We do not have enough information to answer this question.

Question 57

Under what circumstances will the economic rent earned by a factor of production always be zero?

A) Infinitely inelastic supply curve
B) Infinitely elastic supply curve
C) Somewhat inelastic supply curve
D) Elastic demand curve

Question 58

All of the payment to a factor of production will be economic rent when the factor of production has:

A) an infinitely inelastic supply curve.
B) an infinitely elastic supply curve.
C) a constant, unit elastic supply curve.
D) an infinitely inelastic demand curve.

Question 59

Suppose the labor market is perfectly competitive, but the output market is not. When the labor market is in equilibrium, the wage rate will:

A) be less than the marginal revenue product of labor.
B) equal the marginal revenue product of labor.
C) be greater than the marginal revenue product of labor.
D) None of the above is necessarily correct.

Question 60

Suppose the labor market is perfectly competitive, but the output market is not. When the labor market is in equilibrium, the wage rate will:

A) be less than price times the marginal product of labor.
B) equal price times the marginal product of labor.
C) be greater than price times the marginal product of labor.
D) None of the above is necessarily correct.

Question 61

If the factor supply curve facing a monopolist is the market supply curve, and if the market supply curve is an upward sloping straight line, the marginal expenditure curve

A) lies below the market supply curve.
B) lies above the market supply curve.
C) is the market supply curve.
D) crosses the market supply curve at the market wage rate.
E) either A or B is possible.

Question 62

In the United States, major league baseball is exempt from antitrust laws. Before 1975, the baseball team owners agreed to hold an annual draft of amateur baseball players. Once the players were drafted and signed by a team, they were effectively tied to that team for life. This allowed baseball owners to operate like ________ in the market for player services.

A) perfect competitors
B) monopolistic competitors
C) a monopsonistic cartel
D) a monopoly

Question 63

The marginal expenditure curve for labor is based on the assumption that

A) the most productive workers are hired first.
B) the wage rate is independent of the quantity of labor employed.
C) the market supply curve for labor is infinitely elastic.
D) all workers are paid the same wage rate.
E) none of the above

Question 64

The market for production workers in a Midwestern metropolitan area is highly competitive. The market supply and demand curves for production workers are given as:
L_S = -2500 + 1000W L_D = 10500 - 625W,
where L_D = labor demand is full time workers per hour,
L_S = labor supply is full time workers per hour,
and W = hourly wage. White Manufacturing Co. employs production workers in the manufacture of bearings for skate boards. The firm's production function is given by the expression:
Q = 88.8L - 0.5L²,
where Q = output, measured as boxes of bearings per hour, and L = number of workers employed per hour. From this production function, the marginal product and average product of labor are:
MP = 88.8 - L AP = 88.8 - 0.5L
White currently sells bearings for $10 per box.
a. Determine the equilibrium wage and level of employment in the market. Calculate the total rent that is being earned by workers.
b. Determine the number of workers that White Manufacturing would employ at the wage determined in part (a). What total output will White produce?

Question 65

When contemplating the purchase of a resource, the pure monopsonist should do which of the following to maximize profit?

A) Purchase enough to make the marginal expenditure equal to the marginal revenue product.
B) Purchase enough to make the average expenditure equal to the marginal revenue product.
C) Pay a wage equal to the value of MRP at the intersection of MRP and ME curves.
D) Pay a wage equal to the value of MRP at the intersection of AE and MRP curves.

Question 66

Scenario 14.4:
John's firm is a competitor in your product market and a monopsonist in the labor market. The current market price of the product that your firm produces is $2. The total product and marginal product of labor are given as:
TP = 100L - 0.125L² MP = 100 - 0.25L
where L is the amount of labor employed. The supply curve for labor and the marginal expenditure curve for labor are given as follows:
L = P_L -5 ME_L = 2L + 5
Refer to Scenario 14.4. Suppose that a subsidy is implemented on each unit of labor hired. Then the number of workers hired

A) will decrease.
B) will increase.
C) will not change.
D) will change in an indeterminate fashion.

Question 67

Which of the following is TRUE concerning equilibrium in a monopsonistic factor market?

A) The firm uses the efficient level of the input but does not maximize profit.
B) The firm maximizes profit but does not use the efficient level of the input.
C) The firm maximizes profit and uses the efficient level of the input.
D) The firm either maximizes profit or uses the efficient level of the input, but it cannot do both at the same time.

Question 68

Which of the following statements is TRUE when comparing monopsony and competitive labor markets?

A) The monopsony hires more workers but pays a lower wage.
B) The monopsony hires more workers at a higher wage.
C) The monopsonist's wage is lower and quantity of labor higher than would prevail under competition.
D) The monopsonist's wage and quantity of labor are lower than would prevail under perfect competition.

Question 69

Scenario 14.4:
John's firm is a competitor in your product market and a monopsonist in the labor market. The current market price of the product that your firm produces is $2. The total product and marginal product of labor are given as:
TP = 100L - 0.125L² MP = 100 - 0.25L
where L is the amount of labor employed. The supply curve for labor and the marginal expenditure curve for labor are given as follows:
L = P_L -5 ME_L = 2L + 5
Refer to Scenario 14.4. Suppose that a pollution tax is imposed on each unit of a firm's output. The number of workers hired

A) will decrease.
B) will increase.
C) will not change.
D) will change in an indeterminate fashion.

Question 70

The following expressions describe a perfectly competitive labor market. The labor supply curve is:
S_L = AE = $3.00 + $0.000375L.
The marginal revenue product of labor curve is:
MRP_L = $13.00 - 0.000433L.
a. Find the equilibrium wage in this labor market. Also, find the optimal number of labor hours worked per week. Let L represent the number of labor hours worked per week, and let W represent the hourly wage of workers.
b. Determine the economic rent earned by labor in this situation.

Question 71

There is always some economic rent whenever the:

A) demand for a factor is downward sloping.
B) supply of a factor is upward sloping.
C) supply and demand intersect.
D) supply of a factor is horizontal.

Question 72

Scenario 14.4:
John's firm is a competitor in your product market and a monopsonist in the labor market. The current market price of the product that your firm produces is $2. The total product and marginal product of labor are given as:
TP = 100L - 0.125L² MP = 100 - 0.25L
where L is the amount of labor employed. The supply curve for labor and the marginal expenditure curve for labor are given as follows:
L = P_L -5 ME_L = 2L + 5
Refer to Scenario 14.4. Suppose that the price of the product rises to $5, the price of labor

A) will decrease.
B) will increase.
C) will not change.
D) will change in an indeterminate fashion.

Question 73

Scenario 14.4:
John's firm is a competitor in your product market and a monopsonist in the labor market. The current market price of the product that your firm produces is $2. The total product and marginal product of labor are given as:
TP = 100L - 0.125L² MP = 100 - 0.25L
where L is the amount of labor employed. The supply curve for labor and the marginal expenditure curve for labor are given as follows:
L = P_L -5 ME_L = 2L + 5
Refer to Scenario 14.4. Suppose that the price of the product rises to $5. Which of the following curves shifts?

A) MP curve
B) MRP curve
C) Supply of labor curve
D) Marginal expenditure curve

Question 74

For a monopsony buyer of an input, the marginal expenditure curve

A) lies above the average expenditure curve.
B) lies below the average expenditure curve.
C) is identical to the average expenditure curve.
D) lies below the input demand curve.

Question 75

Who does NOT earn economic rent in a competitive factor market?

A) No one
B) Everyone
C) The last factor of production hired
D) The inframarginal workers
E) Only owners of physical properties earn economic rents

Question 76

In the United States, major league baseball is exempt from antitrust laws. Before 1975, the baseball team owners agreed to hold an annual draft of amateur baseball players. Once the players were drafted and signed by a team, they were effectively tied to that team for life. Before 1975, professional baseball players were paid:

A) less than their marginal revenue product.
B) their marginal revenue product.
C) more than their marginal revenue product.
D) none of the above is necessarily correct.

Question 77

Scenario 14.4:
John's firm is a competitor in your product market and a monopsonist in the labor market. The current market price of the product that your firm produces is $2. The total product and marginal product of labor are given as:
TP = 100L - 0.125L² MP = 100 - 0.25L
where L is the amount of labor employed. The supply curve for labor and the marginal expenditure curve for labor are given as follows:
L = P_L -5 ME_L = 2L + 5
Refer to Scenario 14.4. How much will the monopsonist pay each worker?

A) 0
B) 78
C) 83
D) 92
E) 100

Question 78

Scenario 14.4:
John's firm is a competitor in your product market and a monopsonist in the labor market. The current market price of the product that your firm produces is $2. The total product and marginal product of labor are given as:
TP = 100L - 0.125L² MP = 100 - 0.25L
where L is the amount of labor employed. The supply curve for labor and the marginal expenditure curve for labor are given as follows:
L = P_L -5 ME_L = 2L + 5
Refer to Scenario 14.4. Suppose that a tax is imposed on each unit of the product that John produces. Which curve will shift?

A) Marginal product of labor
B) Marginal revenue product of labor
C) The supply of labor
D) All of the above will shift due to the tax on output.

Question 79

In some markets plumbers have a choice of joining unions or working as nonunion plumbers. The total short-run supply of plumbers is perfectly inelastic at 500 workers per day. The demands for nonunionized and unionized plumbers, respectively, are:
W_NU = 30 - 0.04L W_U = 30 - 0.10L.
The wage rate is W in $/hr. and the number of workers per day is L.
a. Determine the total demand for plumbers.
b. Calculate the total market wage rate of plumbers assuming that unionized and nonunionized plumbers get the same wage rate.
c. If the unionized workers succeeded in getting their wage increased to $20.00 per hour, how many unionized workers would lose their jobs?
d. If the unionized workers in (c) who lost their jobs take jobs as non-unionized workers, how much and in what direction would non-unionized wages change?

Question 80

Scenario 14.4:
John's firm is a competitor in your product market and a monopsonist in the labor market. The current market price of the product that your firm produces is $2. The total product and marginal product of labor are given as:
TP = 100L - 0.125L² MP = 100 - 0.25L
where L is the amount of labor employed. The supply curve for labor and the marginal expenditure curve for labor are given as follows:
L = P_L -5 ME_L = 2L + 5
Refer to Scenario 14.4. Suppose that the price of the product rises to $5, the number of workers hired

A) will decrease.
B) will increase.
C) will not change.
D) cannot be determined without knowing the wage rate.