Question 1

The marginal product of labor is defined as the change in

Accepted Answer

The marginal product of labor refers to the additional output produced as a result of employing one more unit of labor, making choice B the correct definition.

Question 2

Describe the difference between a diminishing marginal product of labor and a negative marginal product of labor. Why would a profit-maximizing firm always choose to operate where the marginal product of labor is decreasing (but not negative)?

Accepted Answer

The answer of Describe the difference between a diminishing marginal...

Question 3

Economic theory predicts a close relationship between productivity and real wages. Does history confirm this relationship?

Accepted Answer

The answer of Economic theory predicts a close relationship between...

Question 4

Suppose that eight workers can manufacture 63 radios per day and that nine workers can manufacture 85 radios per day. If radios can be sold for $18 each, the value of marginal product of the ninth worker is

Accepted Answer

The value of the marginal product of the ninth worker is calculated by first finding the marginal product, which is the additional output produced by the ninth worker, and then multiplying it by the price per unit. The marginal product is 85 radios (with nine workers) minus 63 radios (with eight workers) = 22 radios. Multiplying the marginal product (22 radios) by the price per radio ($18) gives $396.

Question 5

The U.S. economy experienced a significant slowdown in productivity growth that lasted from about 1973 to about __________.

Accepted Answer

The answer of The U.S. economy experienced a significant slowdown...

Question 6

In the 1980s, the dangerous Ebola virus entered the United States through contaminated monkeys that were imported for use in medical experiments. Suppose this virus had not been contained but had spread to the general population. Assume that the virus is lethal in half of the people who are exposed to it. Describe the resulting effect on labor productivity.

Accepted Answer

The answer of In the 1980s, the dangerous Ebola virus...

Question 7

When you receive interest on your bank account, that income is part of the economy's __________ income.

Accepted Answer

The answer of When you receive interest on your bank...

Question 8

Describe the process by which the market for capital and the market for land reach equilibrium. As part of your description, elaborate on the role of the stock of the resource versus the flow of services from the resource.

Accepted Answer

The answer of Describe the process by which the market...

Question 9

Using the theory of wage determination, explain why wages in developing countries, where levels of capital are small, are typically quite low.

Accepted Answer

The answer of Using the theory of wage determination, explain...

Question 10

Describe the difference between the purchase price of capital and the rental price of capital. If you know the value of marginal product from the flow of capital services, how would you determine the market price for the capital stock?

Accepted Answer

The answer of Describe the difference between the purchase price...

Question 11

Value of marginal product is defined as the additional

Accepted Answer

The value of marginal product is defined as the additional revenue a firm earns from hiring one more unit of a factor of production, such as labor or capital. This concept is crucial in understanding how firms decide on the amount of resources to employ.

Question 12

Kofi's Auto World installs tires on automobiles, light trucks, and sport utility vehicles. He is a profit-maximizing business owner whose firm operates in a competitive market. The marginal cost of installing a tire is $15. The marginal productivity of the last worker that Kofi hired was 3 tires per hour. What is the maximum hourly wage that Kofi was willing to pay the last worker hired?

Accepted Answer

The maximum hourly wage Kofi was willing to pay the last worker hired is equal to the marginal revenue product (MRP) of that worker. MRP is calculated as the marginal product of labor (MPL) times the price of the output (in this case, the marginal cost of installing a tire, since it's a competitive market). The MPL is 3 tires per hour, and the price per tire is $15, so the MRP = 3 tires/hour * $15/tire = $45. This means Kofi was willing to pay up to $45 per hour for the last worker.

Question 13

The equilibrium purchase price of an acre of land depends upon the current value of the marginal product of land and upon the __________.

Accepted Answer

The answer of The equilibrium purchase price of an acre...

Question 14

Suppose XYZ Corporation is currently renting 300 units of capital at a rental price of $500 units per unit. The value of the marginal product of the 300^th unit of capital is $400. How can the corporation increase its profit?

Accepted Answer

The answer of Suppose XYZ Corporation is currently renting 300...

Question 15

Diminishing marginal product affects the shape of the production function in what way?

Accepted Answer

Diminishing marginal product implies that as more units of an input are added to production, the additional output produced from each new unit of input decreases. This results in the slope of the production function decreasing as the quantity of input increases, reflecting a flattening curve rather than a steepening or linear one.

Question 16

Explain how a firm values the contribution of workers to its profitability. Would a profit-maximizing competitive firm ever stop increasing employment as long as marginal product is rising? Explain your answer.

Accepted Answer

The answer of Explain how a firm values the contribution...

Question 17

A recent flood in the Midwest has destroyed much of the farmland that lies in fertile regions near the rivers. Describe the effect of the flood on the marginal productivity of land, labor, and capital. How would the flood affect the price of inputs? Provide some examples.

Accepted Answer

The answer of A recent flood in the Midwest has...

Question 18

Because a firm's demand for a factor of production is derived from its decision to supply a good in the market, it is called a

Accepted Answer

The term "derived demand" refers to the demand for a factor of production or input that arises from the demand for the output it helps to produce. Since a firm's need for inputs like labor or raw materials depends on the demand for the products they are used to make, this demand is considered "derived" from the demand for those products.

Question 19

When a production function exhibits a diminishing, but positive, marginal product of labor,

Accepted Answer

When a production function exhibits a diminishing, but positive, marginal product of labor, it means that adding more workers increases total output, but each additional worker contributes less to output than the previous one. This results in output increasing at a decreasing rate.

Question 20

To say that a firm is competitive in the labor market is to say that the firm

Accepted Answer

A firm being competitive in the labor market implies it operates under the conditions of a competitive market, where individual firms do not have the power to set wages but rather accept the market wage determined by the supply and demand for labor.

Quiz 18: The Markets for the Factors of Production