Question 1

What does it mean for two inputs to be complements? Give an example that describes how
labor and capital can be complementary inputs.

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Question 2

The manager of a baseball team wants to hire a new pitcher for $4 million per year. Under what circumstances would it make sense for the team to do so?

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Question 3

What is the factor substitution effect?

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Question 4

Using Table 10.2 above calculate the unit cost of production for each type of technology assuming that the price of capital is $1 per unit and the price of labor is $2 per unit. Which technology would the firm use and why?

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Question 5

Why is it more difficult for a firm to calculate the marginal revenue product of a player in the industry of professional sports versus that of a worker in a competitive manufacturing industry?

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Question 6

A firm producing compact discs reports the following production information:
  The compact discs sell in a competitive market at a price of $0.20 per box. The firm hires workers in a competitive labor market at a wage of $12 per hour. The firm is currently hiring four workers and is considering hiring a fifth worker. What would you recommend the firm do? Why?

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Question 7

Comment on the following statement: "As the market wage rises, the firm is likely to hire less labor."

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Question 8

Explain the output and factor substitution effects of an increase in the price of capital on the Demand for labor by a firm that produces output using both capital and labor.

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Question 9

Comment on the following statement: "The output effect and the factor substitution effect work in opposite directions, so it is possible that a decrease in the wage rate can lead to a decrease in the amount of labor hired."

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Question 10

A firm producing bottled water reports the following production information:
  The bottled water sells in a competitive market at a price of 10 cents per gallon. The firm hires workers in a competitive labor market at a wage of $7 per hour. The firm is currently hiring 20 workers and is considering hiring another 10. What would you recommend the firm do? Why?

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Question 11

Explain the output effect of a factor price increase.

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Question 12

A firm purchasing labor in a competitive market has the following marginal revenue product curve:  The market equilibrium wage is $14 and the firm currently employs 12 workers. Is the firm maximizing profit? Explain.

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Question 13

Assume that an employer discovers that the marginal revenue product of the last two workers that he has hired is less than the wage rate that he is paying them. He is operating in a purely competitive market in both the output that he sells and the labor that he hires. What would you advise this employer to do and why?

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Question 14

Script Pro produces robots that are sold to retail pharmacies. Among other things the robots print and apply the prescription and auxiliary labels and delivers uncapped vials for final inspection using on-screen drug image verification. The manager of the pharmacy is trying to calm his workers' fear that their jobs are in jeopardy if he starts using these robots. What economic explanation could the manager use to assuage the fears of his employees that their jobs are in jeopardy.

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Question 15

Explain why an employer in a perfectly competitive market will hire more workers when the marginal revenue product is greater than the wage.

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Question 16

Assume that workers in a purely competitive industry are earning a wage rate of $15 and the price of the product they are producing is also $15 what does this imply about the marginal productivity of these workers?

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Question 17

Explain why input demand curves slope downward using the concepts of the factor
substitution effect and the output effect.

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Question 18

A bakery producing bread reports the following production information:
  The bread sells in a competitive market at a price of $0.30 each. The firm hires workers in a competitive labor market at a wage of $7 per hour. How many workers should the firm hire? Explain your answer.

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Question 19

A firm producing ink pens reports the following production information:
  The pens sell in a competitive market at a price of $0.50 per box. The firm hires workers in a competitive labor market at a wage of $9 per hour. How many workers should the firm hire? Explain your answer.

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Question 20

Suppose that the price of capital falls. Does this necessarily imply that the demand for labor will fall? Explain.

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Quiz 10: Input Demand: the Labor and Land Markets

What does it mean for two inputs to be complements? Give an example that describes how labor and capital can be complementary inputs.