Question 1

The price of leisure:

Accepted Answer

The price of leisure refers to the opportunity cost of the time spent not working, which is equal to the wage rate. Therefore, choice B is the correct answer. Choice A is incorrect because the number of hours worked is not related to the price of leisure. Choice C is incorrect because the opportunity cost of leisure can be measured. Choice D is incorrect because the price of leisure is not directly dependent on the price of capital.

Question 2

Which of the following is not a potential source of monopsony power?

Accepted Answer

Many firms competing for the same input implies a competitive market for the input, which would not give any single buyer monopsony power. The other choices could potentially give a buyer monopsony power. Strong attachments of individuals to their home towns could limit the available labor pool for a company in that area, giving them power over workers. Costs of transporting bulky material inputs and immobility of inputs could limit the number of potential suppliers for a buyer, giving them power over the input market.

Question 3

If the VMP of an input for a competitive firm is downward sloping, then:

Accepted Answer

If the VMP of an input for a competitive firm is downward sloping, it means that each additional unit of the input adds less to total output than the previous unit, indicating diminishing marginal returns.

Question 4

The demand for labour can be expressed as Q = 10,000 - w and the supply of labour is Q = 5,000 + w where Q is total person- hours of work during the week and w is the weekly salary. What is the equilibrium weekly wage rate?

Accepted Answer

The equilibrium weekly wage rate is the point where the demand for labour equals the supply of labour. In this case, the equilibrium weekly wage rate is 2,500.

Question 5

A firm which is a competitor in its output market and a competitor in an input market is:

Accepted Answer

A firm that is a competitor in both its output market and input market is operating efficiently. This is because it is able to sell its output at a competitive market price and purchase its inputs at a competitive market price, leading to a situation where VMP equals MRP and MFC equals w.

Question 6

The marginal revenue product of labour in the local saw mill is MRPL = 20 - .5L, where L = the number of workers. If the wage of saw mill workers is $10 per hour, then how many workers will the mill hire?

Accepted Answer

The mill will hire workers until the marginal revenue product of labor (MRPL) equals the wage rate. Setting MRPL = 10, we have 20 - 0.5L = 10. Solving for L gives L = 20.

Question 7

Unlike a competitive buyer:

Accepted Answer

A monopsonist's price depends on the quantity purchased because they have market power over suppliers, meaning as they buy more, the price they have to pay per unit can increase due to the upward-sloping supply curve they face.

Question 8

The firm's labour demand curve is given by:

Accepted Answer

The firm's labour demand curve is based on its marginal revenue product (MRP), which indicates the additional revenue generated by each additional unit of labour. As long as the wage is lower than the maximum value of average revenue product (ARP), hiring an additional worker will increase the firm's profits. Therefore, the labour demand curve is equal to the MRP curve for any wage lower than the maximum ARP value.

Question 9

If leisure is a normal good and the wage increases:

Accepted Answer

The answer of If leisure is a normal good and...

Question 10

Suppose MP = 10/L. If the firm sells its output in a competitive market at a price of $8, how much labour will the firm hire if the wage rate is $5 per unit of labour?

Accepted Answer

The answer of Suppose MP = 10/L. If the firm...

Question 11

If a resource is exhaustible, its supply curve in a single period is:

Accepted Answer

The answer of If a resource is exhaustible, its supply...

Question 12

An increase in one's non- labour income:

Accepted Answer

Non-labor income is any form of income that does not come from work, such as investment income or inheritance. An increase in non-labor income shifts the budget constraint up, meaning the person has more money to spend on both leisure and consumption goods. This increase in income allows the person to have more leisure time without sacrificing their consumption level, thus shifting the income-leisure budget constraint up in a parallel fashion.

Question 13

Monopsony in an input market is a source of inefficiency in the allocation of resources because:

Accepted Answer

Monopsony in an input market can lead to inefficiency because the monopsonist has market power and can hire less of the input than would be socially optimal. This leads to a lower equilibrium quantity and higher equilibrium price than would exist in a perfectly competitive market. Options A, C, and D are not necessarily true in all cases of monopsony.

Question 14

Figure 11A

-In Figure 11A, the individual's human capital production function is:

Accepted Answer

The answer of Figure 11A

-In Figure 11A, the individual's human...

Question 15

A perfectly competitive input market:

Accepted Answer

A perfectly competitive input market has all firms and inputs as price takers, meaning that no one has market power to influence the price. This ensures that resources are allocated efficiently and results in the lowest possible cost of production. The other options are incorrect because intermediate goods may or may not be present in a perfectly competitive input market, firms cannot be price searchers in a perfectly competitive market, and the input price does not necessarily have to equal the output price.

Question 16

For a monopsony buyer, the marginal expenditure per unit of an input:

Accepted Answer

In a monopsony, the buyer has significant control over the market and often pays different prices for additional units of an input. Therefore, the marginal expenditure (the additional cost of buying one more unit of the input) exceeds the average expenditure per unit because purchasing additional units typically requires paying a higher price for those units.

Question 17

Donna's schmoo firm uses one input, z, and she sells her output at $10 per unit. The marginal product of z is 10 - z and the price of z is $20 per unit. The profit maximizing quantity of z is:

Accepted Answer

The answer of Donna's schmoo firm uses one input, z,...

Question 18

A perfectly competitive firm's downward sloping demand for an input is determined by the:

Accepted Answer

The perfectly competitive firm's demand for an input depends on the price of output because the firm will only hire an input if its marginal product is greater than or equal to its price. The marginal product of the input affects the amount of the input that the firm wants to purchase at any given price, so the demand curve for the input is determined by the price of output and the marginal product of the input.

Question 19

If a firm is perfectly competitive in its input markets, then, in short- run equilibrium:

Accepted Answer

The answer of If a firm is perfectly competitive in...

Question 20

The marginal revenue product of labour in the local saw mill is MRPL = 20 - .5L, where L = the number of workers. If the mill hires 20 workers, what is the wage rate?

Accepted Answer

To determine the wage rate, we need to find where the marginal revenue product of labour equals the wage rate. So we set MRPL = W where W = wage rate:
20 - 0.5L = W
Plugging in L = 20 (since the mill hires 20 workers), we get:
20 - 0.5(20) = W
20 - 10 = W
10 = W
Therefore, the wage rate is 10, which corresponds to choice (B).

Quiz 11: Input Markets and the Allocation of Resources