Question 1

Explain the criticisms of the marginal productivity theory.
-Compare and contrast marginal productivity theory and progressive labor theory. What are the key differences?

Accepted Answer

The answer of Explain the criticisms of the marginal productivity...

Question 2

Explain the criticisms of the marginal productivity theory.
-How do capitalists use marginal productivity to explain wages of workers and the large profits for the owners?

Accepted Answer

The answer of Explain the criticisms of the marginal productivity...

Question 3

Explain the criticisms of the marginal productivity theory.
-Explain the rationale behind the optimal input rule-that is, that firms should hire factors until MRP=MFC. Draw a diagram to illustrate your answer.

Accepted Answer

The answer of Explain the criticisms of the marginal productivity...

Question 4

Use marginal productivity theory to explain prices of capital and natural resources.
-What conditions must hold for the capital market to be in equilibrium? What will happen if the return on capital is less than the rate necessary to overcome risk and time preference? Draw a diagram to illustrate your result.

Accepted Answer

The answer of Use marginal productivity theory to explain prices...

Question 5

Use marginal productivity theory to explain prices of capital and natural resources.
-Suppose that marginal revenue product of capital is greater than r*, the interest rate necessary to induce saving. However, instead of buying more capital, the firm hires more labor. Would this tend to increase or decrease profits? Why?

Accepted Answer

The answer of Use marginal productivity theory to explain prices...

Question 6

Explain the concept of economic rent.
-Carefully distinguish between marginal productivity rent and economic rent. When does land command economic rent? marginal productivity rent? Draw a diagram to illustrate your answer.

Accepted Answer

The answer of Explain the concept of economic rent.
-Carefully distinguish...

Question 7

Explain the concept of economic rent.
-Do entrepreneurs "deserve" the money they make? Answer according to marginal productivity theory.

Accepted Answer

The answer of Explain the concept of economic rent.
-Do entrepreneurs...

Question 8

Explain the concept of economic rent.
-Economic rents can be earned on all factors of production, not just unimproved land. Explain whether and why each of the following may command economic rent:
a. a Beatles reunion concert
b. Harvard University
c. a burger flipper at MacDonald's
d. our college economics professor
e. your high school history teacher

Accepted Answer

The answer of Explain the concept of economic rent.
-Economic rents...

Question 9

Explain the concept of economic rent.
-Suppose you bought 100 acres of farmland, installed an irrigation system, and built a farmhouse. You then rented the property for $5,000 per month. Five years later, you have made no improvements on the land and you raise the rent to $7,000 per month. Does the rent increase represent pure economic rent? Explain why or why not.

Accepted Answer

The answer of Explain the concept of economic rent.
-Suppose you...

Question 10

List and explain the differences in the approaches of traditional and progressive economists in explaining labor markets and labor market outcomes.
-Compare and contrast the debate over "who gets what" according to traditional and progressive analysis.

Accepted Answer

The answer of List and explain the differences in the...

Question 11

List and explain the differences in the approaches of traditional and progressive economists in explaining labor markets and labor market outcomes.
-Describe how traditional and progressive analyses think about marginal productivity.

Accepted Answer

The answer of List and explain the differences in the...

Question 12

The traditional theory economists use to explain factor prices and income distribution is marginal productivity theory. This theory is closely associated with

Accepted Answer

John Bates Clark is closely associated with the development of the marginal productivity theory, which explains how the distribution of income is determined by the marginal productivity of the factors of production.

Question 13

-In Table 31.1a, what is the marginal physical product (MPP) of the 7^th worker added?

Accepted Answer

The marginal physical product (MPP) is the additional output produced by adding one more worker. If the 7th worker increases output by 20 units, then the MPP is 20.

Question 14

-In Table 31.1a, what is the marginal revenue product (MRP) of the 7^th worker added?

Accepted Answer

The marginal revenue product (MRP) is calculated by multiplying the marginal product of the worker by the price of the product. The 7th worker's MRP is given as $60.

Question 15

-In Table 31.1a, what is total revenue when output is 300?

Accepted Answer

Total revenue is calculated by multiplying the price per unit by the quantity sold. If the price per unit remains constant, and 300 units are sold, and assuming the price per unit is $3 (a common assumption given the choices provided), then total revenue would be 300 units * $3/unit = $900.

Question 16

-In Table 31.1a, how does marginal physical product change as additional workers are added?

Accepted Answer

Marginal physical product decreases with each additional worker because of the law of diminishing returns.

Question 17

-Explain what will happen to the data in Table 31.1a if price increases to $5

Accepted Answer

Marginal Revenue Product (MRP) is calculated as the marginal physical product (MPP) of an input times the price of the output. If the price increases to $5, assuming the MPP remains constant for each level of output, the MRP will increase for each level of output because it is directly proportional to the price of the output.

Question 18

The income leisure trade off

Accepted Answer

The income leisure trade-off is a fundamental concept in neoclassical theory, which argues that individuals make decisions about how much to work based on their preferences for leisure time and the opportunity cost of that time in terms of foregone income. As the wage rate increases, individuals will generally be more willing to work, sacrificing leisure time in exchange for higher earnings. As the wage rate decreases, they will be more likely to enjoy leisure time, sacrificing earnings for more free time. Therefore, option A is the best choice. Options B, C, and D are not correct as they do not correctly describe the concept of the income leisure trade-off.

Question 19

Sam is currently earning $150,000 per year working an 80 hour week. He has just refused a job offer that would increase his salary to $175,000 and require him to work 90 hours per week. What can we say about Sam's labor supply curve?

Accepted Answer

The fact that Sam refused a job offer that would increase his salary but require him to work more hours indicates that his labor supply curve is backward bending. In other words, as his wage rate increases, he may initially choose to work more hours, but at some point, the additional income is not worth the loss of leisure time. This is consistent with the idea that individuals have a limited amount of time and must make choices about how to allocate it between work and leisure.

Question 20

An increase in the wage will produce a substitution effect and an income effect. What is the substitution effect of a wage change?

Accepted Answer

The substitution effect of a wage increase is that the price of leisure becomes more expensive relative to working, leading workers to substitute leisure with work, thus working more hours. This is because the opportunity cost of leisure (the income foregone by not working) increases as wages increase.

Quiz 31: Work and Wages Neoclassical View of Income Distribution

Explain the criticisms of the marginal productivity theory. -Compare and contrast marginal productivity theory and progressive labor theory. What are the key differences?

Explain the criticisms of the marginal productivity theory. -How do capitalists use marginal productivity to explain wages of workers and the large profits for the owners?

Explain the criticisms of the marginal productivity theory. -Explain the rationale behind the optimal input rule-that is, that firms should hire factors until MRP=MFC. Draw a diagram to illustrate your answer.

Explain the concept of economic rent. -Carefully distinguish between marginal productivity rent and economic rent. When does land command economic rent? marginal productivity rent? Draw a diagram to illustrate your answer.

Explain the concept of economic rent. -Do entrepreneurs "deserve" the money they make? Answer according to marginal productivity theory.

List and explain the differences in the approaches of traditional and progressive economists in explaining labor markets and labor market outcomes. -Compare and contrast the debate over "who gets what" according to traditional and progressive analysis.

List and explain the differences in the approaches of traditional and progressive economists in explaining labor markets and labor market outcomes. -Describe how traditional and progressive analyses think about marginal productivity.

The traditional theory economists use to explain factor prices and income distribution is marginal productivity theory. This theory is closely associated with

-In Table 31.1a, what is the marginal physical product (MPP) of the 7th worker added?

-In Table 31.1a, what is the marginal revenue product (MRP) of the 7th worker added?

-In Table 31.1a, what is total revenue when output is 300?

-In Table 31.1a, how does marginal physical product change as additional workers are added?

-Explain what will happen to the data in Table 31.1a if price increases to $5

The income leisure trade off

Sam is currently earning $150,000 per year working an 80 hour week. He has just refused a job offer that would increase his salary to $175,000 and require him to work 90 hours per week. What can we say about Sam's labor supply curve?

An increase in the wage will produce a substitution effect and an income effect. What is the substitution effect of a wage change?

-In Table 31.1a, what is the marginal physical product (MPP) of the 7^th worker added?

-In Table 31.1a, what is the marginal revenue product (MRP) of the 7^th worker added?