Question 1

We say that the demand for labor is a derived demand because

Accepted Answer

The demand for labor is a derived demand because it is derived from the demand for the products or services that the labor helps to produce, rather than being demanded for its own sake. The demand for labor is therefore dependent on the demand for the goods and services that labor helps to create.

Question 2

Marginal product is

Accepted Answer

Marginal product is the additional output produced by an additional unit of input (such as labor). Therefore, it is the amount an additional worker adds to the firm's total output.

Question 3

Harry owns a barbershop and charges $6 per haircut. By hiring one barber at $10 per hour, the shop can provide 24 haircuts per eight-hour day. By hiring a second barber at the same wage rate, the shop can now provide a total of 42 haircuts per day. The MP of the second barber is

Accepted Answer

The first step is to find the daily cost of hiring one barber. The cost is:

$10/hour x 8 hours/day = $80/day

Next, we need to find the marginal product (MP) of the second barber. This is the additional output that the second barber contributes to the total output of the shop.

We know that hiring the first barber produces 24 haircuts per day, and hiring the second barber produces a total of 42 haircuts per day. Therefore, the additional output from the second barber is:

42 haircuts/day – 24 haircuts/day = 18 haircuts/day

Finally, we can calculate the MP of the second barber by dividing the additional output by the cost of hiring that barber:

MP = additional output / cost
MP = 18 haircuts / $80
MP = $0.225/haircut

So the MP of the second barber is $0.225 per haircut, or $0.225 x 6 haircuts = $1.35 per hour.

Question 4

An employer hiring in a competitive labor market should hire additional labor as long as

Accepted Answer

In a competitive labor market, the employer should hire additional labor as long as the marginal revenue product (MRP) of labor exceeds the wage rate. This is because the MRP represents the additional revenue generated by hiring an additional unit of labor, while the wage rate is the cost of hiring that additional unit of labor. By hiring until MRP = wage rate, the employer optimizes their profit-maximizing level of employment.

Question 5

Harry owns a barbershop and charges $6 per haircut. By hiring one barber at $10 per hour, the shop can provide 24 haircuts per eight-hour day. By hiring a second barber at the same wage rate, the shop can now provide a total of 42 haircuts per day. Harry should

Accepted Answer

The first barber provides 24 haircuts, generating $144 in revenue (24 x $6) and costing $80 in wages (8 x $10), resulting in a profit of $64. The second barber adds 18 haircuts (42 total - 24), generating $108 in revenue (18 x $6) and costing $80 in wages, resulting in a profit of $28. Therefore, hiring the second barber adds $28 to profits.

Question 6

Assume labor is the only variable input and that an additional input of labor increases total output from 72 to 80 units. If the product sells for $6 per unit in a purely competitive market, the MRP of this additional worker is

Accepted Answer

The Marginal Revenue Product (MRP) is calculated by multiplying the change in output (8 units) by the price per unit ($6), which equals $48.

Question 7

The marginal revenue product schedule is

Accepted Answer

The marginal revenue product schedule shows the additional revenue a firm earns from hiring an additional unit of a specific resource. It is typically the firm's resource demand schedule because it shows the price the firm is willing to pay for each unit of the resource. It is not the same for purely competitive or imperfectly competitive markets, as the price and demand for resources can vary depending on market conditions. The resource supply schedule shows how much of a resource is available at various prices, and is not directly related to the marginal revenue product schedule. The marginal revenue product schedule is typically upsloping, indicating that as the firm hires more units of a resource, the marginal revenue product (and therefore the firm's demand for the resource) increases.

Question 8

Resource pricing is important because

Accepted Answer

Resource pricing plays a crucial role in determining money incomes, allocating scarce resources among alternative uses, and minimizing costs for firms. Therefore, all of the given reasons are valid and important in emphasizing the significance of resource pricing.

Question 9

The MRP curve for labor

Accepted Answer

The answer of The MRP curve for labor
...

Question 10

When economists say that the demand for labor is a derived demand, they mean that it is

Accepted Answer

The term "derived demand" means that the demand for a particular factor of production (in this case, labor) is derived from the demand for the goods or services that the factor helps to produce. In other words, businesses don't want to hire labor just for the sake of hiring labor; they want to hire labor because they need workers to produce the goods or services that they sell. Therefore, the demand for labor is closely related to the demand for the goods or services that the labor is producing.

Question 11

The demand for airline pilots results from the demand for air travel. This fact is an example of

Accepted Answer

The fact that the demand for airline pilots is derived from the demand for air travel means that it is a result of the demand for the final product or service (air travel), rather than a result of the availability or cost of the input (pilots). This is an example of derived demand for labor.

Question 12

The labor demand curve of a purely competitive seller

Accepted Answer

The labor demand curve slopes downward due to diminishing marginal productivity, meaning that as more labor is hired, the additional output produced by each additional worker decreases, leading to a lower willingness to pay for additional labor.

Question 13

A profit-maximizing firm employs resources to the point where

Accepted Answer

MRP (marginal revenue product) represents the additional revenue a firm gets from employing an additional unit of resource, while MRC (marginal resource cost) is the cost of employing an additional unit of the resource. Therefore, a profit-maximizing firm should employ resources until the additional revenue generated from the last unit of resource (MRP) equals the cost of employing that unit (MRC). This is captured in choice C, where MRP = MRC.

Question 14

In the United States, professional football players earn much higher incomes than professional soccer players. This occurs because

Accepted Answer

Football has a larger fan base than soccer in the United States, resulting in higher demand for football games. This higher demand translates into higher revenues for professional football teams, which can then afford to pay their players higher salaries. In contrast, lower demand for soccer games in the United States leads to lower revenue for professional soccer teams, which in turn cannot afford to pay their players as much.

Question 15

Marginal revenue product measures the

Accepted Answer

Marginal revenue product is the change in a firm's total revenue resulting from hiring one additional unit of a resource (in this case, a worker). Therefore, it measures the amount by which the addition of one more worker increases a firm's total revenue.

Question 16

If one worker can pick $30 worth of grapes and two workers together can pick $50 worth of grapes, the

Accepted Answer

The marginal revenue product (MRP) of the second worker is the additional revenue generated by hiring the second worker. Since one worker picks $30 worth of grapes and two workers together pick $50 worth, the second worker contributes an additional $20 worth of grapes.

Question 17

A firm will find it profitable to hire workers up to the point at which their

Accepted Answer

The firm will hire workers up to the point where their MRP (marginal revenue product) is equal to their marginal resource cost (MRC). This is because the firm wants to maximize its profits and if it hires more workers beyond this point, the cost of hiring an extra worker (MRC) will exceed the benefit that the worker brings in (MRP). Therefore, the correct option here is D, where the firm will stop hiring workers once the MRC is equal to the MRP.

Question 18

The demand for a resource depends primarily on

Accepted Answer

The demand for a resource is primarily dependent on the demand for the product or service that the resource helps produce. As the demand for the product or service increases, the demand for the resource used in production also increases. Therefore, the demand for a resource is derived from the demand for the final product or service.

Question 19

Harry owns a barbershop and charges $6 per haircut. By hiring one barber at $10 per hour, the shop can provide 24 haircuts per eight-hour day. By hiring a second barber at the same wage rate, the shop can now provide a total of 42 haircuts per day. The MRP of the second barber is

Accepted Answer

The answer of Harry owns a barbershop and charges $6...

Question 20

Which of the following statements best illustrates the concept of derived demand?

Accepted Answer

Derived demand refers to the demand for a particular product or resource that arises as a result of the demand for another product or service. In this case, the decline in the demand for shoes reduces the demand for leather since leather is a key input in the production of shoes. Therefore, choice C best illustrates the concept of derived demand. The other choices do not involve two interrelated products or services.

Quiz 16: The Demand for Resources