Question 1

Suppose a firm's hourly marginal product of labor is given by MPN = A (200 - N).
(a)If A = 0.2 and the real wage rate is $10 per hour,how much labor will the firm want to hire?
(b)Suppose the real wage rate rises to $20 per hour.How much labor will the firm want to hire?
(c)With the real wage rate at $10 per hour,how much labor will the firm want to hire if A rises to 0.5?

Accepted Answer

The answer of Suppose a firm's hourly marginal product of...

Question 2

A person is more likely to increase labor supply in response to an increase in the real wage,the ________ is the income effect and the ________ is the substitution effect.

Accepted Answer

The substitution effect, which makes leisure more expensive relative to work, tends to increase labor supply as real wages rise. The income effect, which increases overall income, might reduce labor supply by allowing a person to afford more leisure. Therefore, a larger substitution effect relative to a smaller income effect would more likely increase labor supply.

Question 3

The marginal product of labor (measured in units of output)for Relient Corp.is given by MPN = A(200 - N)
Where A measures productivity and N is the number of labor hours used in production.Suppose the price of output is $3 per unit and A = 2.0.What will be the demand for labor if the nominal wage is $30?

Accepted Answer

The demand for labor is determined by setting the value of the marginal product of labor equal to the nominal wage. The value of the marginal product of labor (VMPL) is given by the price of output times the marginal product of labor, which is $3 * 2(200 - N) = $6(200 - N). Setting this equal to the nominal wage of $30 and solving for N gives the demand for labor. $6(200 - N) = $30, simplifying to 1200 - 6N = 30, then 1170 = 6N, and finally N = 195.

Question 4

Zowie! Surfboards has the following production function. 
If surfboards sell for $30 and the nominal wage rate is $200,how many workers should the firm employ?

Accepted Answer

To determine the optimal number of workers, we need to find the level of output where the marginal product of labor equals the wage rate. Looking at the graph, we can see that the marginal product of labor is equal to the wage rate where 4 workers are employed. At this level of output, each additional worker hired would add less to the total output than the cost of the additional worker's wage. Therefore, the optimal number of workers for this production function is 4.

Question 5

The income effect of a higher real wage on the quantity of labor supply is the

Accepted Answer

The income effect of a higher real wage on the quantity of labor supply is the tendency of workers to supply less labor in response to becoming wealthier. As workers earn more money for each hour worked, they may choose to work fewer hours in order to maintain their desired level of leisure time. This is known as the income effect, which operates in the opposite direction of the substitution effect, which suggests that a higher wage will lead to an increased supply of labor as workers substitute work for leisure.

Question 6

The marginal product of labor (measured in units of output)of a firm is given by
MPN = A(2000 - N)
where A measures productivity and N is the number of labor hours used in production.Suppose the price of output is $6 per unit and A = 0.002.
(a)What will be the demand for labor if the nominal wage is $18?
(b)What will be the demand for labor if the nominal wage rises to $21?

Accepted Answer

The answer of The marginal product of labor (measured in...

Question 7

The aggregate supply of labor is the

Accepted Answer

The aggregate supply of labor refers to the total amount of labor supplied by everyone in the economy, including both employed and unemployed individuals. It reflects the total hours worked and the number of people in the labor force. Therefore, the correct answer is D - sum of the labor supplied by everyone in the economy.

Question 8

If a country's working-age population declines and its wealth increases,then the labor supply curve

Accepted Answer

The question highlights that the working-age population is declining. This means that there are fewer workers available than before, which would cause a shift to the left in the labor supply curve. The increase in wealth of the country is not relevant to the direction of the shift, as it does not affect the number of workers available. Therefore, the correct answer is choice C.

Question 9

The tendency of workers to supply more labor in response to a larger reward for working is called the ________ of a higher real wage on the quantity of labor supplied.

Accepted Answer

The correct term for the described tendency is the substitution effect. The substitution effect occurs when higher wages make leisure time more expensive relative to working time, leading people to work more hours to offset the higher cost of leisure. The income effect, on the other hand, refers to the tendency of people to work less as their income goes up, as they can afford to consume more leisure time. The other choices are not relevant to the concept described in the question.

Question 10

A technological breakthrough in using photons for computers will increase the productivity of those working with computers a hundredfold.You would expect this breakthrough to shift the

Accepted Answer

Technological breakthroughs that increase productivity typically shift the marginal product of labor curve up and to the right, which increases the demand for labor at any given wage rate as employers seek to take advantage of the increased productivity. This would lead to an increase in the quantity of labor demanded at any given real wage, as stated in option A.

Question 11

A winter ice storm has paralyzed the entire east coast,reducing productivity sharply.This supply shock shifts the marginal product of labor curve

Accepted Answer

A supply shock that reduces productivity, such as a winter ice storm, shifts the marginal product of labor curve down and to the left. This means that employers are willing to hire fewer workers at any given real wage, reducing the quantity of labor demanded.

Question 12

If a country's working-age population increases and its wealth increases,then the labor supply curve

Accepted Answer

If the increase in wealth reduces the need for individuals to work more than the increase in working-age population increases the labor supply, the labor supply curve will shift to the left.

Question 13

A permanent increase in the real wage rate has a ________ income effect on labor supply than a temporary increase in the real wage,so labor supply is ________ with a permanent wage increase than for a temporary wage increase.

Accepted Answer

A permanent increase in the real wage rate has a larger income effect on labor supply than a temporary increase, leading individuals to value leisure more compared to work. As a result, labor supply is less with a permanent wage increase than for a temporary wage increase, because people can afford to work less while maintaining their desired standard of living.

Question 14

If Jeff's wage rate rises,he decides to work fewer hours.From this,we can infer that

Accepted Answer

When Jeff decides to work fewer hours as his wage rate rises, it indicates that the income effect (the increase in his purchasing power, leading him to enjoy more leisure time) outweighs the substitution effect (the incentive to work more hours because the opportunity cost of not working has increased).

Question 15

Which of the following events would lead to an increase in the marginal product of labor for every quantity of labor?

Accepted Answer

A favorable supply shock such as a fall in the price of oil would lead to a reduction in production costs, which would increase the marginal product of labor for every quantity of labor. A decrease in the real wage might lead to firms hiring more workers to maintain the same level of output but would not necessarily increase the marginal product of labor. An adverse supply shock, such as a reduced supply of raw materials, would decrease the marginal product of labor for every quantity of labor.

Question 16

The marginal product of labor (measured in units of output)for Expando Corp.is given by MPN = A(400 - N)
Where A measures productivity and N is the number of labor hours used in production.Suppose the price of output is $3 per unit and A = 2.0.What will be the demand for labor if the nominal wage is $18?

Accepted Answer

The answer of The marginal product of labor (measured in...

Question 17

As a result of the superb economics essay that you wrote during this quarter,you won the Adam Smith prize of $100.The receipt of these funds would be an example of

Accepted Answer

The receipt of the $100 prize is an example of a pure income effect, as it increases the consumer's purchasing power and allows for an increase in consumption of all goods, without needing to substitute between them. The substitution effect arises when a change in relative prices of goods leads to a change in consumer behavior towards one good over another. Since there has been no change in relative prices, there is no substitution effect. Therefore, choices A, B, and D are not the best choices.

Question 18

If Jeff's wage rate rises,he decides to work more hours.From this,we can infer that

Accepted Answer

The substitution effect describes how individuals respond to changes in relative prices, while the income effect describes the change in demand due to a change in income. When Jeff's wage rate rises, his relative wage (the price of his leisure in terms of foregone earnings) increases, prompting him to work more hours to take advantage of the higher wage rate. This shows that the substitution effect dominates the income effect, since he is willing to substitute more of his leisure for work at the higher wage rate. Therefore, choice A is the best answer.

Question 19

An adverse supply shock,such as a reduced supply of raw materials,would

Accepted Answer

A reduced supply of raw materials would decrease the productivity of production processes and make it more difficult for workers to produce goods. This would lower the marginal product of labor.

Question 20

Research on labor supply generally shows that

Accepted Answer

Labor supply tends to rise with a temporary increase in real wages as workers are incentivized to work more hours for higher pay, but may fall with a permanent increase due to the income effect, where workers can maintain their standard of living with fewer hours.

Quiz 3: Productivity, output, and Employment

A person is more likely to increase labor supply in response to an increase in the real wage,the is the income effect and the is the substitution effect.

Zowie! Surfboards has the following production function. If surfboards sell for $30 and the nominal wage rate is $200,how many workers should the firm employ?