Question 1

A firm is producing 100 pencils per week.The production process requires labor and capital as inputs.Labor costs $6 per labor hour, and capital costs $12 per machine hour.Currently, the marginal product of labor is 18 pencils and the marginal product of capital is 36 pencils.To minimize the cost of producing this level of output, the firm should use

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Question 2

A firm is employing inputs such that the marginal product of labor is 25 and the marginal product of capital is 40.The price of labor is $5, and the price of capital is $8.If the firm wants to minimize costs, then it should

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Question 3

What happens when technological advance makes available a new highly productive capital good for which MP/P is greater than that of labor for which it is a substitute resource?

Accepted Answer

When the marginal product per price (MP/P) of the new capital is greater than that of labor, it means the new capital is more cost-effective. Firms will adopt the new capital to reduce costs and increase productivity, leading to labor being replaced by the new capital.

Question 4

A firm will be hiring labor and capital in profit-maximizing amounts when

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Question 5

The introduction of automatic elevator equipment allowed firms to handle the movement of people in a multistory building at less cost, thus decreasing the demand for elevator operators.The best explanation for this change is that the

Accepted Answer

The introduction of automatic elevator equipment reduced costs, indicating that its marginal product relative to its price was greater than that of elevator operators, making it more cost-effective.

Question 6

Suppose a competitive firm in both the resource and product markets is using inputs such that the marginal product of labor is 16 and the price of labor is $4 per unit, while the marginal product of capital is 12 and the price of capital is $3 per unit.At the maximum profit equilibrium point, the price of the product is

Accepted Answer

The profit-maximizing condition is that the marginal product of labor divided by the price of labor equals the marginal product of capital divided by the price of capital. In this case, 16/4 = 12/3, so the price of the product must be $3.

Question 7

In which of the cases given below will the elasticity of demand for workers who produce yo-yos be most inelastic? The price elasticity of demand for yo-yos is

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Question 8

If labor costs are 60 percent of production costs, then a 15 percent increase in wage rates would increase production costs by

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Question 9

Other things being equal, a labor union will find it harder to obtain a wage increase for its members the

Accepted Answer

If it is easier to substitute other resources for labor, such as technology or outsourcing, then the demand for labor becomes more elastic. This means that employers have more options for replacing union workers with other resources, making it harder for the union to obtain a wage increase for its members.

Question 10

A firm combines two resources, A and B, to produce an output, Q.Their respective marginal revenue products are $30 and $21.A costs $15 a unit and B $7 a unit.To reduce the cost of Q,

Accepted Answer

The firm should use more of resource B and less of resource A because the marginal revenue product per dollar spent on B ($21/$7 = 3) is higher than that on A ($30/$15 = 2). This indicates that B is more cost-effective in producing output Q.

Question 11

Other things being the same, if the demand for labor is inelastic,

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Question 12

A firm is producing with the least-cost combination of resources when the

Accepted Answer

When the last dollar spent on each resource yields the same marginal product, the firm is at the point where the marginal cost of each resource is equal. At this point, the firm is using the least-cost combination of resources to produce the desired level of output. Therefore, option A is the correct answer. The other options are incorrect because they do not necessarily result in the firm producing with the least-cost combination of resources.

Question 13

A business is employing inputs such that the marginal product of labor is 40 and the marginal product of capital is 90.The price of labor is $20, and the price of capital is $30.If the business wants to minimize costs while keeping output constant, then it should

Accepted Answer

The marginal product of capital is higher than the marginal product of labor, but the price of labor is lower than the price of capital. Therefore, the business should use less labor and more capital to minimize costs while keeping output constant.

Question 14

In the marginal productivity theory of income distribution, when all markets are purely competitive, the payment for each unit of a resource is equal to its

Accepted Answer

The marginal productivity theory of income distribution states that in a purely competitive market, the payment for each unit of a resource is equal to its marginal revenue product. This means that the payment received by a resource (such as labor or capital) is equal to the additional revenue generated by using one more unit of that resource. Therefore, the correct choice is C - the payment for each unit of a resource is equal to its marginal revenue product.

Question 15

The "least-cost combination of resources" to produce a given amount of output means that the output is produced at the lowest

Accepted Answer

The "least-cost combination of resources" refers to the combination of inputs that minimizes the cost of producing a given output level. This means that the output is produced at the lowest ATC (average total cost) for that output, making choice A the correct answer. Option B is incorrect because MC (marginal cost) only considers the additional cost of producing one more unit, not the total cost of producing a given output level. Option C is incorrect because P (price) is not related to the cost of production. Option D is incorrect because TR (total revenue) is not related to the cost of production.

Question 16

In firm X labor costs are 85 percent of production costs, while in firm Y labor costs are 40 percent of production costs.A 20 percent increase in wages would increase production costs by

Accepted Answer

Let's assume that original production costs for both firms are $100.
For firm X, labor costs would be $85 and other production costs would be $15.
If there is a 20% increase in wages, labor costs would become $102 (85 * 120%). As a result, total production costs would be $117 ($102 + $15).
Therefore, the percentage increase in production costs would be 17% ((117-100)/100 * 100)).
For firm Y, labor costs would be $40 and other production costs would be $60.
If there is a 20% increase in wages, labor costs would become $48 (40 * 120%). As a result, total production costs would be $108 ($48 + $60).
Therefore, the percentage increase in production costs would be 8% ((108-100)/100 * 100)).
Therefore, the answer is (D), 17 percent in firm X and 8 percent in firm Y.

Question 17

A cost-minimizing firm using two inputs, x and y, will employ inputs so that

Accepted Answer

A cost-minimizing firm will employ inputs such that the marginal product per dollar spent on each input is equal, i.e., MPx / Px = MPy / Py. This ensures that the firm is getting the same additional output per unit of cost from each input.

Question 18

Suppose that the production of wheat requires two inputs, labor and fertilizer.The price of labor is $4.50, and the price of fertilizer is $3.00.A farmer is currently employing the inputs such that the marginal product of labor is 11 and the marginal product of fertilizer is 8.If the farmer is a cost-minimizer, he should

Accepted Answer

The farmer should adjust input usage to equalize the marginal product per dollar spent on each input. Currently, the marginal product per dollar for labor is 11/4.50 = 2.44, and for fertilizer, it is 8/3.00 = 2.67. Since the marginal product per dollar is higher for fertilizer, the farmer should use more fertilizer and less labor to minimize costs.

Question 19

Other things being equal, the elasticity of demand for labor will be greater the

Accepted Answer

The elasticity of demand for labor will be greater when there are larger numbers of close substitute resources available because employers can easily switch to other substitutes if the price of labor increases. This gives them more bargaining power and makes the demand for labor more elastic.

Question 20

A computer manufacturer's elasticity of demand for labor is not likely to be affected by the

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Quiz 16: The Demand for Resources