Question 1

Suppose there are profit-maximizing, competitive buyers and sellers of labor in an industry, and the amount of capital is fixed for each firm. Explain under what condition the output price will equal the wage rate.

Accepted Answer

The answer of Suppose there are profit-maximizing, competitive buyers and...

Question 2

After Hurricane Katrina destroyed much of the infrastructure of the United States Gulf Coast,
A)labor became more valuable.
B)labor became less valuable because of the capital that had been destroyed.
C)labor became less valuable because FEMA's response wasn't timely.
D)labor became more valuable because of the rebuilding effort.

Accepted Answer

The answer of After Hurricane Katrina destroyed much of the...

Question 3

For a competitive firm the marginal revenue product of labor is usually downward sloping.

Accepted Answer

The marginal revenue product equals the marginal product multiplied by the constant price. The marginal product of labor is usually downward sloping due to diminishing marginal returns.

Question 4

If the competitive firm maximizes profit by selecting labor rather than output, it will earn greater economic profit.

Accepted Answer

Whether the firm maximizes profit by selecting output or labor, the resulting profit is the same. Since MC = w/MP, setting MC = p is the same as setting w = p ∗ MP.

Question 5

Which of the following labor markets is more likely to be competitive?
A)Receptionists
B)Singers
C)Soccer players
D)Sculptors

Accepted Answer

Receptionists are likely to be in a competitive labor market because there are usually many people qualified for the job and there is a fairly low barrier to entry. In contrast, singers, soccer players, and sculptors are all specialized fields with a limited number of opportunities, which can lead to less competition and potentially higher wages.

Question 6

If workers suddenly decide to value more their leisure time than before, this
A)shifts the labor supply curve to the left, resulting in a wage increase and less workers hired.
B)shifts the labor supply curve to the right, resulting in a wage increase and less workers hired.
C)shifts the labor supply curve to the left, resulting in a wage decrease and less workers hired.
D)shifts the labor supply curve to the right, resulting in a wage increase and more workers hired.

Accepted Answer

If workers suddenly decide to value more their leisure time than before, they will work fewer hours. This will decrease the labor supply, thus shifting the supply curve to the left. Lower supply would result in a higher wage rate and less workers hired. Therefore, option A is correct.

Question 7

Why is the short-run demand curve for labor downward sloping?

Accepted Answer

The answer of Why is the short-run demand curve for...

Question 8

XYZ Co. operates in a competitive market. Its marginal product of labor is 1/L, and it takes the wage and price as given. Derive the firm's short-run demand for labor as a function of w and p. How much labor will the firm hire if w = 2 and p = 10?

Accepted Answer

The answer of XYZ Co. operates in a competitive market....

Question 9

A firm faces competitive markets for its inputs and its output. At the profit-maximizing level of output, its marginal cost is $10 and the wage paid is $2. If the MPL = L^-0.5, how many workers will be hired by the firm? A)35 B)40 C)25 D)5

Accepted Answer

The answer of A firm faces competitive markets for its...

Question 10

To derive the labor market demand curve, the labor demand curves for each firm in the output market of interest are summed.

Accepted Answer

The labor demand curve for each output market are determined and summed.

Question 11

A firm uses labor and capital in its production process, and it faces competitive markets for its inputs and output. The firm's long-run labor demand curve
A)intersects with the short-run labor demand curve in several points.
B)is exactly identical to its short-run labor demand curve.
C)is steeper than its short-run labor demand curve.
D)is flatter than its short-run labor demand curve.

Accepted Answer

In the long run, a firm can adjust its capital stock along with labor, giving it more flexibility to substitute between the factors of production. This means that the firm's long-run labor demand curve will be flatter than its short-run labor demand curve. Therefore, the correct answer is (D) is flatter than its short-run labor demand curve.

Question 12

In the short run, a competitive firm has a marginal product of labor, MPL = 2L^-0.25. The output price is $4 per unit and the wage is $5 per hour. The short-run labor demand curve for the firm is A)10L^-0.25. B)8L^-0.5. C)4L^0.25. D)8L^-0.25.

Accepted Answer

The formula for short-run labor demand is MPL = MRP / wage, where MPL is the marginal product of labor and MRP is the marginal revenue product of labor. In this case, MRP = output price × MPL = $4 × (2L^{- 0.25}). Substituting this into the labor demand formula, we get: MPL = MRP / wage 2L^{- 0.25} = ($4 × (2L^{- 0.25})) / $5 10L^{- 1.25} = 8L^- 8L^{- 0.25} = 0 Simplifying, we get: 8L^{- 0.25} = 0 8L^{= 0.25} 32L⁼ Therefore, the short-run labor demand curve for the firm is 8L^{- 0.25}. The answer is D.

Question 13

During the Black Plague, capital became worthless. What can explain this?
A)Capital's marginal product fell because there was less labor.
B)Capitalists died off at a greater rate than the workers.
C)Capital's marginal product increased but the marginal product of labor decreased.
D)Workers forgot how to use the capital.

Accepted Answer

Capital's marginal product fell because there was a significant reduction in the labor force due to the high mortality rate from the Black Plague. With fewer workers available to utilize the capital (machinery, tools, buildings, etc.), the productivity and value of capital decreased.

Question 14

A firm faces competitive markets for its inputs and its output. Its marginal revenue product of labor
A)is increasing in the output price.
B)is decreasing in the output price.
C)is independent of the output price.
D)has an inverted U-shape.

Accepted Answer

If the firm faces competitive markets for both its inputs and outputs, then the wage rate it pays for labor will be determined by the labor market, and its output price will be determined by the product market. Therefore, if the price of the firm's output increases, its marginal revenue product of labor (MRPL) will also increase. This is because the firm can sell more output at a higher price, which creates a greater demand for labor and increases the value of each additional unit of labor. Thus, MRPL is increasing in the output price.

Question 15

How does a competitive firm's demand for labor react to a specific tax on each unit of output it sells?

Accepted Answer

The answer of How does a competitive firm's demand for...

Question 16

In the short run, a competitive firm has a marginal product of labor, MPL = 8L^-0.5. The output price is $16 per unit and the wage is $2 per hour. At the profit-maximizing level, how many units of labor are hired by the firm? A)L = 4 B)L = 6 C)L = 12 D)L = 8

Accepted Answer

To find the profit-maximizing level of labor (L*), we need to set the marginal cost of labor (MCL) equal to the wage rate (w): MCL = w MPL x P = w 8L^-0.5 x $16 = $2 Solve for L: 8L^-0.5 = $0.25 L = 8 Thus, the profit-maximizing level of labor is 8 units.

Question 17

If the price of a competitive firm's output increases, the firm responds in the short run by demanding more labor.

Accepted Answer

The firm wishes to sell more output and can do so only by hiring more labor.

Question 18

The labor market demand curve
A)is the summation of the labor demand curve for each output market.
B)is identical to the average firm labor demand curve.
C)is the sum of the wages paid for each unit of labor of the individual firms labor demands.
D)is always upward sloping for competitive labor markets.

Accepted Answer

The labor market demand curve is the summation of the labor demand curve for each output market. This is because firms in different output markets may have different levels of demand for labor depending on the industries they operate in and the products they produce. Therefore, to determine the overall demand for labor in the labor market, we need to add up the labor demand of all the firms in different output markets.

Question 19

A firm faces competitive markets for its inputs and its output. At the profit-maximizing level of output, its marginal cost is $10 and the wage paid is $2. If the MPL = L^-0.5, what is the marginal product of the firm? A)0.10 B)0.2 C)0.35 D)5

Accepted Answer

The answer of A firm faces competitive markets for its...

Question 20

XYZ Co. operates in a competitive market. Its production function is q = L^αK^β. The exponents, α and β, are both less than 1. The firm's capital is fixed, and it takes the wage and price as given. Derive the firm's short-run demand for labor as a function of K, w, and p. How does the firm react to an increase in the wage rate?

Accepted Answer

The answer of XYZ Co. operates in a competitive market....

Quiz 15: Factor Markets

Suppose there are profit-maximizing, competitive buyers and sellers of labor in an industry, and the amount of capital is fixed for each firm. Explain under what condition the output price will equal the wage rate.

After Hurricane Katrina destroyed much of the infrastructure of the United States Gulf Coast,

For a competitive firm the marginal revenue product of labor is usually downward sloping.

If the competitive firm maximizes profit by selecting labor rather than output, it will earn greater economic profit.

Which of the following labor markets is more likely to be competitive?

If workers suddenly decide to value more their leisure time than before, this

Why is the short-run demand curve for labor downward sloping?

XYZ Co. operates in a competitive market. Its marginal product of labor is 1/L, and it takes the wage and price as given. Derive the firm's short-run demand for labor as a function of w and p. How much labor will the firm hire if w = 2 and p = 10?

A firm faces competitive markets for its inputs and its output. At the profit-maximizing level of output, its marginal cost is $10 and the wage paid is $2. If the MPL = L-0.5, how many workers will be hired by the firm?

To derive the labor market demand curve, the labor demand curves for each firm in the output market of interest are summed.

A firm uses labor and capital in its production process, and it faces competitive markets for its inputs and output. The firm's long-run labor demand curve

In the short run, a competitive firm has a marginal product of labor, MPL = 2L-0.25. The output price is $4 per unit and the wage is $5 per hour. The short-run labor demand curve for the firm is

During the Black Plague, capital became worthless. What can explain this?

A firm faces competitive markets for its inputs and its output. Its marginal revenue product of labor

How does a competitive firm's demand for labor react to a specific tax on each unit of output it sells?

In the short run, a competitive firm has a marginal product of labor, MPL = 8L-0.5. The output price is $16 per unit and the wage is $2 per hour. At the profit-maximizing level, how many units of labor are hired by the firm?

If the price of a competitive firm's output increases, the firm responds in the short run by demanding more labor.

The labor market demand curve

A firm faces competitive markets for its inputs and its output. At the profit-maximizing level of output, its marginal cost is $10 and the wage paid is $2. If the MPL = L-0.5, what is the marginal product of the firm?

A firm faces competitive markets for its inputs and its output. At the profit-maximizing level of output, its marginal cost is $10 and the wage paid is $2. If the MPL = L^-0.5, how many workers will be hired by the firm?

In the short run, a competitive firm has a marginal product of labor, MPL = 2L^-0.25. The output price is $4 per unit and the wage is $5 per hour. The short-run labor demand curve for the firm is

In the short run, a competitive firm has a marginal product of labor, MPL = 8L^-0.5. The output price is $16 per unit and the wage is $2 per hour. At the profit-maximizing level, how many units of labor are hired by the firm?

A firm faces competitive markets for its inputs and its output. At the profit-maximizing level of output, its marginal cost is $10 and the wage paid is $2. If the MPL = L^-0.5, what is the marginal product of the firm?