Question 1

If the demand for orange juice increases,the derived demand for orange grove workers will decrease.

Accepted Answer

If the demand for orange juice increases, there will be more demand for oranges, which means more demand for orange grove workers to supply the oranges needed to make the juice. Therefore, the derived demand for orange grove workers will increase.

Question 2

According to the marginal productivity theory of income distribution,if a unit of labor is paid more than a unit of capital,it is because,at the equilibrium quantity of each factor,the value of the marginal product of labor is proportionately greater than the value of the marginal product of capital.

Accepted Answer

According to the marginal productivity theory of income distribution, the factor of production (either labor or capital) that has a higher marginal product will be paid more. Therefore, if labor is being paid more than capital, it is because the value of the marginal product of labor is proportionately greater than the value of the marginal product of capital at the equilibrium quantity of each factor.

Question 3

Assume that perfect competition exists in output and factor markets.The P = MC rule for profit maximization implies the same level of labor use that would be implied by using the VMPL = W rule.

Accepted Answer

Under perfect competition, the price of the output is equal to the marginal cost of production. Therefore, the profit maximizing rule is P=MC. At this level of output, the value of the marginal product of labor (VMPL) is equal to the wage rate (W). Thus, using either rule will result in the same level of labor use.

Question 4

Although improved technology can either increase or decrease the demand for a factor of production,the usual effect of technological progress is to reduce demand for labor,holding everything else constant.

Accepted Answer

Technological progress can increase demand for labor by creating new industries and jobs, even as it automates others.

Question 5

If a perfectly competitive firm chooses its level of output so that price equals marginal revenue,the value of the marginal product of labor will equal the wage rate.

Accepted Answer

The answer of If a perfectly competitive firm chooses its...

Question 6

The marginal productivity theory of income distribution assumes that factor markets are perfectly competitive.

Accepted Answer

The marginal productivity theory of income distribution is based on the assumption of perfect competition in factor markets. It states that each factor of production (e.g. labor, capital) is paid a wage or rent equal to its marginal productivity, which is determined by the intersection of the supply and demand curves for that factor. In perfect competition, the price of a factor is equal to its marginal revenue product, which is the additional revenue generated by each additional unit of the factor. Therefore, the theory assumes no market power or bargaining ability on the part of firms or workers, and that all factors are homogeneous and interchangeable.

Question 7

The equilibrium value of the marginal product of a factor is the additional value produced by the most productive unit of that factor employed in the factor market as a whole.

Accepted Answer

The equilibrium value of the marginal product of a factor is the additional value produced by the last unit of that factor employed, not the most productive unit.

Question 8

Your boss is trying to decide whether to buy out a rival company and asks for your advice.The boss says that she will buy the rival if there is evidence that the rival is operating inefficiently.(Your company will then improve its efficiency and increase profits. )She will not buy the rival if there is evidence that the rival is already operating efficiently.Your boss gives you the following data on the rival's operations: The average product of labor is 4,the marginal product of the last worker hired is 10,the wage is $20,and the price of output is $5.Based on this information,you should tell your boss to buy the rival.

Accepted Answer

Based on the given data, the rival's average product of labor is less than the marginal product of the last worker hired, which indicates that the rival is operating inefficiently. Therefore, it would be advisable for your boss to buy the rival and improve its efficiency to increase profits.

Question 9

The marginal productivity theory of income distribution assumes that factor markets are oligopolies.

Accepted Answer

The marginal productivity theory of income distribution assumes that factor markets are perfectly competitive, not oligopolies.

Question 10

Suppose that the factor market for computer engineers is competitive in India and the United States,but Indian engineers earn one-fifth of what American engineers earn.This means that engineers in India are price takers,but engineers in America are not.

Accepted Answer

In a competitive market, both Indian and American engineers would be price takers, as wages are determined by supply and demand. The difference in earnings does not imply a difference in market structure.

Question 11

According to the marginal productivity theory of income distribution,in a competitive economy each factor of production is paid its equilibrium value of the marginal product.

Accepted Answer

The marginal productivity theory of income distribution states that in a competitive economy, each factor of production is paid its equilibrium value of the marginal product. This means that the factors of production, such as labor and capital, are compensated based on their contribution to the production process. In other words, the more productive a factor is, the more income it generates.

Question 12

According to the marginal productivity theory of income distribution,every factor of production is paid a wage equal to the equilibrium value of its average product.

Accepted Answer

According to the marginal productivity theory of income distribution, every factor of production is paid a wage equal to the equilibrium value of its marginal product, not its average product.

Question 13

According to the marginal productivity theory of income distribution,if a unit of labor is paid more than a unit of capital,it is because,at the equilibrium quantity of each factor,the value of the marginal product of labor is equal to the value of the marginal product of capital.

Accepted Answer

According to the marginal productivity theory of income distribution, if a unit of labor is paid more than a unit of capital, it is because the value of the marginal product of labor is higher than the value of the marginal product of capital, not equal, at the equilibrium quantity of each factor.

Question 14

The marginal productivity theory of income distribution is based on the assumption that factor markets are perfectly competitive.

Accepted Answer

The marginal productivity theory of income distribution assumes that factor markets are perfectly competitive, which means that there are many buyers and sellers, and no one can influence the market price. This assumption is necessary for the theory to hold, as it relies on the idea that each factor of production (such as labor or capital) is paid according to its marginal productivity, or the additional output that it contributes to the production process. In a perfectly competitive market, each factor is paid its marginal product, which leads to an efficient allocation of resources and a fair distribution of income.

Question 15

At Hamill Manufacturing of Pennsylvania,highly skilled senior machinists are paid $70,000,excluding benefits,but the average skilled machinist generates approximately $137,000 in value added.This is partially because diminishing returns to labor cause the value of the marginal product of the last machinist hired to be greater than the average of all of the machinists employed.

Accepted Answer

The statement about diminishing returns to labor causing the value of the marginal product of the last machinist hired to be greater than the average of all machinists employed is incorrect. Diminishing returns to labor typically mean that each additional unit of labor (e.g., a machinist) adds less to the total output than the previous one, which would make the marginal product less than the average, not greater.

Question 16

The equilibrium value of the marginal product of a factor is the additional value produced by the last unit of that factor employed in the factor market as a whole.

Accepted Answer

This statement is true. The equilibrium value of the marginal product of a factor refers to the additional output produced by the last unit of a factor when all units are employed at the market equilibrium, and this value is determined by the intersection of the market supply and demand curves for the factor.

Question 17

The clearest sign of discrimination against an individual is that that individual is paid less than the value of his or her marginal productivity.

Accepted Answer

The clearest sign of discrimination against an individual would involve unequal treatment or opportunities based on personal characteristics unrelated to job performance, such as race, gender, or age, rather than solely being paid less than the value of their marginal productivity, which can be influenced by various factors including market conditions, negotiation skills, and job demand.

Question 18

At Hamill Manufacturing of Pennsylvania,highly skilled senior machinists are paid $70,000,excluding benefits,but the average skilled machinist generates approximately $137,000 in value added.This difference means that the marginal productivity theory of income distribution doesn't hold.

Accepted Answer

The marginal productivity theory of income distribution suggests that the income of a factor of production, in this case, labor, is determined by its marginal productivity. The fact that machinists at Hamill Manufacturing generate significantly more in value than they are paid is consistent with this theory, as it implies they are being compensated at or below the value they add, which is a core principle of the theory.

Question 19

A profit-maximizing producer employs each factor of production up to the point at which the value of the marginal product of the last unit of the factor employed is equal to the price per unit of output.

Accepted Answer

A profit-maximizing producer employs each factor of production up to the point at which the value of the marginal product of the last unit of the factor employed is equal to the factor's price, not the price per unit of output.

Question 20

According to the marginal productivity theory of income distribution,every factor of production is paid a wage equal to the equilibrium value of its marginal product.

Accepted Answer

According to the marginal productivity theory of income distribution, every factor of production is paid a wage equal to the equilibrium value of its marginal product. This means that each factor of production, such as labor or capital, is paid according to the additional output or revenue that it contributes to the production process. Therefore, the wages or payments to each factor of production are determined by their respective marginal products.

Quiz 19: Factor Markets and the Distribution of Income