Question 1

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.

Accepted Answer

When the substitution effect for leisure is larger than the income effect as wage rates rise, it means that the worker is more inclined to substitute leisure for labor (i.e., work more) because the opportunity cost of not working is higher. This leads to an increase in the quantity of labor supplied as wages rise, which is represented by the usual upward slope of the labor supply curve.

Question 2

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

Accepted Answer

The marginal revenue product (MRP) of an input is calculated as the marginal product of the input (MPx) multiplied by the price of the output (PQ) in a competitive market.

Question 3

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.

Accepted Answer

The marginal revenue product of labor curve represents the additional revenue a firm generates from hiring an additional unit of labor. If a firm can pay a reduced wage while all other conditions remain the same, its cost of production decreases, but the productivity and revenue generated by each worker do not change. Therefore, the marginal revenue product of labor curve stays the same, but the firm would hire more labor because it can now do so at a lower cost, increasing its profit margin.

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

Accepted Answer

In a perfectly competitive labor market, firms hire labor up to the point where the marginal revenue product of labor (MRP) equals the wage rate (W). This is because in perfect competition, firms are price takers and must pay the going wage rate. Therefore, the profit maximizing level of labor occurs where MRP = W. This is answer D.

Question 5

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.

Accepted Answer

When the marginal revenue product of labor exceeds the wage rate, it means that the additional output produced by hiring one more unit of labor is greater than the cost of hiring that labor. This will lead to an increase in profit for the firm, and therefore it would be optimal for the firm to hire more labor. When the marginal revenue product of labor equals or is less than the wage rate, it would not be rational for the firm to hire more labor as it would result in either no increase in profit or a decrease in profit respectively.

Question 6

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.

Accepted Answer

In a purely competitive factor market, a firm is a price taker, meaning it cannot influence the price of the factor of production. As a result, the firm's marginal expenditure curve (MEC) is horizontal and identical to the factor's price. Since the firm cannot influence the price of the factor, the average expenditure curve (AEC) will be identical to the MEC, resulting in a single horizontal curve. Therefore, the answer is C - identical to the marginal expenditure curve.

Question 7

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.

Accepted Answer

In a competitive market, the price of the input is determined by the market supply and demand forces, and individual buyers and sellers are price takers. Therefore, the marginal expenditure for an input and the average expenditure are always equal. This is because any incremental purchase of the input, no matter how small, will lead to an increase in the market price for the input, and thus the cost to the buyer. As a result, the buyer must pay the same price for all units of the input they purchase, leading to a constant average expenditure.

Question 8

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

Accepted Answer

The negative slope of the marginal revenue product curve can be accounted for by diminishing marginal returns. As more and more workers are hired, the additional output produced by each additional worker decreases, leading to a decline in the marginal revenue product.

Question 9

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.

Accepted Answer

An increase in technology that enhances labor productivity typically leads to an increase in labor employment because firms can produce more with the same amount of labor, potentially expanding their operations. Additionally, as labor becomes more productive, the value of labor increases, which can lead to an increase in the wage rate.

Question 10

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.

Accepted Answer

The answer of The marginal product of labor for Acme,Inc.is...

Question 11

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.

Accepted Answer

In a perfectly competitive market, firms are price-takers and the price is equal to the marginal revenue. Therefore, the MRP curve for a competitive seller is the same as the demand curve for their product. On the other hand, in a monopolistic market, the firm has market power and can influence the price by reducing output. This results in a downward sloping MRP curve. As a result, the MRP curve for a competitive seller lies above the MRP curve for a monopolist.

Question 12

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

Accepted Answer

The answer of  Figure 14.1
A consumer's original utility maximizing...

Question 13

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.

Accepted Answer

When several inputs are variable, firms have more flexibility to substitute between inputs in response to changes in input prices, making the demand curve for a factor input more elastic.

Question 14

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

Accepted Answer

The answer of  Figure 14.1
A consumer's original utility maximizing...

Question 15

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.

Accepted Answer

Since the MRP of the factor is greater than the marginal expenditure, the firm can increase profit by expanding the employment of the factor of production. This means that the additional output generated by employing one more unit of the factor of production produces more revenue than the cost of employing that additional unit. Therefore, expanding employment of the factor of production will lead to an increase in profit.

Question 16

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

Accepted Answer

The marginal revenue product of labor (MRP_L) is calculated as the marginal product of labor (MP_L) multiplied by the marginal revenue (MR) that each additional unit of labor brings.

Question 17

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

Accepted Answer

The industry demand curve for labor is determined by horizontally summing the individual firm labor demand curves. This means that at any given wage rate, the industry demand curve shows the total quantity of labor that all firms in the industry are willing to hire.

Question 18

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.

Accepted Answer

Marginal revenue product is the additional revenue a firm earns from hiring one more unit of input. It is calculated by multiplying the marginal product of the input by the marginal revenue of the product. Therefore, option B, which says "increment to revenue received from one additional unit of input hired" is the correct answer. Options A, C, and D are incorrect as they do not fully capture what the marginal revenue product is.

Question 19

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.

Accepted Answer

The answer of The Acme Company is a perfect competitor...

Question 20

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

Accepted Answer

The MRPS (Marginal Revenue Product of Labor Schedule) would remain unchanged because it reflects the additional revenue a firm earns from hiring one more unit of labor, assuming product prices and productivity remain constant. A reduced wage does not change the productivity or the revenue generated per unit of labor; it simply means that labor is cheaper, so firms would hire more labor at the lower wage without the MRPS itself changing.

Quiz 14: Markets for Factor Inputs

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

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

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

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

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

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

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

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

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

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:

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

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 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

The marginal revenue product of labor is equal to

The industry demand curve for labor is the

The marginal revenue product can be expressed as the

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

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