Question 1

Table 12-3
 Refer to Table 12-3. Suppose that the firm pays its workers $55 per day. Each unit of output sells for $12. How many days of labor should the firm hire?
A) 3
B) 4
C) 5
D) 6

Accepted Answer

To determine the best number of days to hire labor, we need to look at the marginal product of labor (MPL) and the marginal revenue product of labor (MRP). From the table, we can see that at 3, MPL is equal to MRP, meaning that the additional revenue generated by hiring an additional worker is equal to the additional cost (wages). However, at 4 days of labor, MRP is greater than MPL, indicating that hiring an additional worker would generate more revenue than the cost of their wages. Therefore, hiring 4 days of labor is the best choice. Beyond 4 days, however, MRP begins to decrease, meaning that hiring additional labor would cost more than the revenue they generate, making 4 days the optimal choice.

Question 2

Table 12-3

Refer to Table 12-3. What is the marginal product of the third worker?
A) 7
B) 8
C) 25
D) 75

Accepted Answer

The answer of Table 12-3

Refer to Table 12-3. What is...

Question 3

If coal and oil are substitute inputs in the production of electricity, an increase in the price of oil
A) will increase the demand for coal.
B) will reduce the demand for coal.
C) will increase the supply of coal.
D) will reduce the supply of coal.
E) will not affect the demand for coal.

Accepted Answer

Coal and oil are substitute inputs in the production of electricity, thus an increase in the price of oil will make coal relatively cheaper, making demand for coal increase.

Question 4

An improvement in technology that allows workers to process twice as many insurance forms in an hour than before will cause
A) more labor to be employed because its marginal revenue product has fallen.
B) an increase in insurance premiums.
C) fewer workers to be employed because their marginal revenue product has decreased.
D) more workers to be employed because their marginal revenue product has increased.
E) fewer workers to be employed because their marginal revenue product has increased.

Accepted Answer

The answer of An improvement in technology that allows workers...

Question 5

If a firm is using a resource hired in a perfectly competitive market, and if the price of the resource exceeds the marginal revenue product of the resource,
A) more of the resource should be used.
B) less of the resource should be used.
C) the firm should pay a lower price for the resource.
D) the firm should pay a higher price for the resource.
E) the firm is using the optimal amount of the resource

Accepted Answer

If the price of the resource hired in a perfectly competitive market exceeds its marginal revenue product, it means that the resource is being overpriced and the firm is paying more for it than the value it adds to the firm's production. In this case, the firm should use less of the resource to bring its usage in line with its marginal revenue product, which would reduce the cost of production and increase profits.

Question 6

An increase in the demand for automobiles will increase the demand for labor used to produce the automobiles due to
A) an increase in the marginal revenue product of labor.
B) a decrease in the marginal revenue product of labor.
C) an increase in the marginal revenue product of automobiles.
D) a decrease in the marginal revenue product of automobiles.
E) a decrease in the price of automobiles.

Accepted Answer

An increase in demand for automobiles will lead to an increase in production, which will require more labor. As a result of the increased demand for labor, the marginal revenue product of labor will increase, indicating that the value of each additional unit of labor has increased. This would lead to an increase in wages or salaries for workers in the automobile industry, attracting more workers to the industry, and increasing the overall labor supply.

Question 7

If a firm is using a resource hired in a perfectly competitive market, and if the marginal resource cost is less than its marginal revenue product,
A) more of the resource should be used.
B) less of the resource should be used.
C) the firm should pay a lower price for the resource.
D) the firm should pay a higher price for the resource.
E) the firm is using the optimal amount of the resource.

Accepted Answer

If the marginal resource cost is less than its marginal revenue product, then the firm can increase its profits by using more of the resource. In a perfectly competitive market, the firm can hire additional units of the resource at the same market price, so it should continue hiring more of the resource as long as the marginal revenue product is greater than the marginal resource cost. Therefore, the best choice is A, more of the resource should be used.

Question 8

An apple orchard currently hires 10 workers. The owner estimates that hiring an additional worker would increase apple yields by 20 bushels per day. The price of apples is $15 per bushel. The owner should hire the extra worker if the wage rate is no greater than
A) $50 per day.
B) $150 per day.
C) $200 per day.
D) $300 per day.

Accepted Answer

The answer of An apple orchard currently hires 10 workers....

Question 9

If the marginal revenue product of the fifth worker hired by a firm is $15 and the price of a unit of output is $5 regardless of how much is sold, then the marginal product of the fifth worker is
A) 15 units of output.
B) 5 units of output.
C) 3 units of output.
D) 45 units of output.
E) 75 units of output.

Accepted Answer

The formula for marginal revenue product (MRP) is:
MRP = marginal product (MP) × price of output (P)
In this case, the MRP of the fifth worker is $15 and the price of output is $5. Therefore:
$15 = MP × $5
MP = 3 units of output
Therefore, the answer is (C) 3 units of output.

Question 10

The marginal revenue product of a resource
A) is defined as the marginal product of the resource multiplied by the resource price.
B) simply means that a firm should add to its capital stock as long as competition requires it.
C) equals the extra output produced by an additional unit of the resource multiplied by the marginal revenue per unit of that output.
D) equals the average product of the resource multiplied by the cost of hiring an additional (marginal) unit of the resource.

Accepted Answer

The answer of The marginal revenue product of a resource
A)...

Question 11

If a profit-maximizing firm hires an additional unit of labor, what must be true about labor's wage and marginal revenue product?
A) Its wage always equals its marginal revenue product.
B) Its wage is always greater than its marginal revenue product.
C) Its wage is always total revenue minus marginal revenue product.
D) Its wage is always less than or equal to its marginal revenue product.

Accepted Answer

A profit-maximizing firm will hire an additional unit of labor as long as the marginal revenue product (MRP) of that unit is greater than or equal to the wage it must pay the worker. Therefore, the wage will always be less than or equal to the MRP of labor.

Question 12

Table 12-2
 Refer to Table 12-2. This table describes the number of baseballs a manufacturer can produce per day with different quantities of labor. Each baseball sells for $5 in a competitive market. If the firm is maximizing the marginal product of labor, what is the firm's marginal revenue product?
A) 140 baseballs.
B) $300.
C) $400.
D) $700.

Accepted Answer

The answer of Table 12-2
 Refer to Table 12-2. This...

Question 13

Tucker Corporation sells its product for $5.00. Tucker's industrial engineers have informed management that hiring one additional worker will increase output by five units per hour. Tucker should hire the additional worker only if the wage rate is
A) $5.00 or less per hour.
B) $1.00 or more per hour.
C) $25.00 or less per hour.
D) none of the above.

Accepted Answer

To determine if it is profitable for Tucker to hire an additional worker, we need to compare the cost of hiring the worker to the additional revenue generated from the increased output.

Assuming the cost of materials and overhead remains constant, the additional revenue generated from the increased output is 5 units per hour x $5.00 per unit = $25.00 per hour.

Therefore, Tucker should hire the additional worker only if the wage rate is less than or equal to $25.00 per hour.

Option A is incorrect because a wage rate of $5.00 or less would not provide any additional revenue to cover the cost of hiring the worker.

Option B is incorrect because a wage rate of $1.00 would not generate enough revenue to cover the cost of hiring the worker.

Option D is incorrect because there is a specific wage rate at which it becomes profitable to hire the additional worker, and we have calculated that to be $25.00 per hour or less.

Question 14

Diane's Auto World installs tires on automobiles, light trucks, and sport utility vehicles. She is a profit-maximizing business owner whose firm operates in a competitive market. The marginal cost of installing a tire is $10. The marginal productivity of the last worker that Diane hired was 2 tires per hour. What is the maximum hourly wage that Diane was willing to pay the last worker hired?
A) $5
B) $10
C) $20
D) There is insufficient information to answer this question.

Accepted Answer

The answer of Diane's Auto World installs tires on automobiles,...

Question 15

A competitive car wash currently hires 4 workers, who together can wash 80 cars per day. The market price of car washes is $5 per wash, and the price of workers is $60 per day. The car wash should hire a fifth worker if it would increase total production to at least
A) 92 cars per day.
B) 100 cars per day.
C) 104 cars per day.
D) 110 cars per day.

Accepted Answer

The answer of A competitive car wash currently hires 4...

Question 16

Troll Corporation sells dolls for $10.00 each in a market that is perfectly competitive. Increasing the number of workers from 100 to 101 would cause output to rise from 500 to 550 dolls per day. The marginal revenue product for the 101st worker is
A) $10.00.
B) $500.
C) $5,000.
D) $1,010.

Accepted Answer

The answer of Troll Corporation sells dolls for $10.00 each...

Question 17

If a college education did not increase worker productivity,
A) no one would go to college.
B) the earnings of workers with a college education would tend to be the same as for workers without a college degree.
C) the earnings of workers with a college education would still be higher than for those without a college degree.
D) the earnings of workers with a college education would be lower than for those without a college degree.

Accepted Answer

The answer of If a college education did not increase...

Question 18

The change in the total revenue of a firm that results from employing one additional unit of a factor of production is defined as the
A) total revenue product of the resource.
B) marginal product of the resource.
C) marginal revenue product of the resource.
D) average revenue product of the resource.

Accepted Answer

The change in total revenue resulting from employing one additional unit of a factor of production is known as the marginal revenue product. It is calculated as the marginal product of the resource (output generated by one additional unit of the resource) multiplied by the marginal revenue (change in revenue resulting from selling one additional unit of output). Therefore, C is the best choice. A is incorrect because total revenue product is not a commonly used term. B is incorrect because marginal product only refers to the increase in output resulting from one additional unit of the resource, without considering the price it is sold for. D is incorrect because average revenue product divides total revenue by the number of units of the resource employed, which is not the same as the change in revenue resulting from one additional unit.

Question 19

Table 12-3

Refer to Table 12-3. Suppose that the firm pays its workers $75 per day. Each unit of output sells for $10. How many days of labor should the firm hire?
A) 1
B) 2
C) 3
D) 4

Accepted Answer

The answer of Table 12-3

Refer to Table 12-3. Suppose that...

Question 20

Ten cases of spring water are sold for $6 each, and the marginal product of the last unit of labor is 5. If the price of a case increases from $6 to $8, then the marginal revenue product of the last unit of labor would
A) decrease by $10.
B) increase by $40.
C) decrease by $30.
D) increase by $10.
E) not change.

Accepted Answer

The marginal product of the last unit of labor is 5, which means that the additional unit of labor contributed to producing 5 more cases of water. At $6 per case, the marginal revenue product is $30 (5 x $6).
If the price of a case increases to $8, then the marginal revenue product would increase to $40 (5 x $8). Therefore, the answer is D, the marginal revenue product would increase by $10.

Quiz 12: The Supply of and Demand for Productive Resources

Table 12-3 Refer to Table 12-3. Suppose that the firm pays its workers $55 per day. Each unit of output sells for $12. How many days of labor should the firm hire?

Table 12-3 Refer to Table 12-3. What is the marginal product of the third worker?

If coal and oil are substitute inputs in the production of electricity, an increase in the price of oil

An improvement in technology that allows workers to process twice as many insurance forms in an hour than before will cause

If a firm is using a resource hired in a perfectly competitive market, and if the price of the resource exceeds the marginal revenue product of the resource,

An increase in the demand for automobiles will increase the demand for labor used to produce the automobiles due to

If a firm is using a resource hired in a perfectly competitive market, and if the marginal resource cost is less than its marginal revenue product,

An apple orchard currently hires 10 workers. The owner estimates that hiring an additional worker would increase apple yields by 20 bushels per day. The price of apples is $15 per bushel. The owner should hire the extra worker if the wage rate is no greater than

If the marginal revenue product of the fifth worker hired by a firm is $15 and the price of a unit of output is $5 regardless of how much is sold, then the marginal product of the fifth worker is

The marginal revenue product of a resource

If a profit-maximizing firm hires an additional unit of labor, what must be true about labor's wage and marginal revenue product?

Tucker Corporation sells its product for $5.00. Tucker's industrial engineers have informed management that hiring one additional worker will increase output by five units per hour. Tucker should hire the additional worker only if the wage rate is

A competitive car wash currently hires 4 workers, who together can wash 80 cars per day. The market price of car washes is $5 per wash, and the price of workers is $60 per day. The car wash should hire a fifth worker if it would increase total production to at least

Troll Corporation sells dolls for $10.00 each in a market that is perfectly competitive. Increasing the number of workers from 100 to 101 would cause output to rise from 500 to 550 dolls per day. The marginal revenue product for the 101st worker is

If a college education did not increase worker productivity,

The change in the total revenue of a firm that results from employing one additional unit of a factor of production is defined as the

Table 12-3 Refer to Table 12-3. Suppose that the firm pays its workers $75 per day. Each unit of output sells for $10. How many days of labor should the firm hire?

Ten cases of spring water are sold for $6 each, and the marginal product of the last unit of labor is 5. If the price of a case increases from $6 to $8, then the marginal revenue product of the last unit of labor would