Question 1

The demand for labor would most likely become less inelastic as a result of

Accepted Answer

An increase in the proportion of labor cost to total costs makes labor demand more elastic because changes in wages have a larger impact on total costs, prompting employers to be more responsive to wage changes.

Question 2

Which would result in a decrease in the elasticity of demand for a particular resource?

Accepted Answer

When the percentage of the firm's total costs accounted for by the resource decreases, the resource becomes less important in terms of overall costs, reducing the impact of changes in the resource's price on the firm's production decisions. This causes the demand for the resource to become less elastic. The other choices would have the opposite effect on the elasticity of demand for the resource.

Question 3

What will the elasticity of resource demand be if unit wages rise by 8 percent and the number of employed workers falls by 5 percent?

Accepted Answer

Elasticity of resource demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, it is -5% / 8% = -0.625, which rounds to 0.63.

Question 4

Other things being equal, if a once-competitive firm attains a high degree of monopoly power in its product market, then its resource demand will

Accepted Answer

As the firm attains a high degree of monopoly power, its market share and pricing power increase, making its demand for resources more inelastic. The firm can now pass on the cost increases to consumers with little or no impact on demand, resulting in a more inelastic resource demand.

Question 5

Which will not be a determinant of the price elasticity of demand for an input?

Accepted Answer

The price of the input itself is not a determinant of its price elasticity of demand; rather, it is the responsiveness of the quantity demanded to changes in price that defines elasticity.

Question 6

A firm is observed using 15 units of input X when the price of X is $2. If the price of X increases to $4, the firm uses only 6 units of it. What is the price elasticity of demand for input X? (Use the simple formula for percentage change: [(new# − old#)/old#] × 100%.)

Accepted Answer

The answer of A firm is observed using 15 units...

Question 7

Other things being equal, the elasticity of demand for labor will be greater the

Accepted Answer

The more substitutes there are for labor, the easier it is for companies to switch to alternative resources if the price of labor increases, making the demand for labor more elastic. The other options relate to factors that decrease the elasticity of demand for labor.

Question 8

A change in a factor's price will have a greater effect on the quantity of the factor demanded the

Accepted Answer

If the demand for the product that the factor helps to make is elastic, then a change in the price of the factor will have a greater effect on the quantity of the factor demanded because a small increase in the price of the factor will lead to a relatively large decrease in the demand for the product, causing a decrease in the demand for the factor. Conversely, if the demand for the product is inelastic, then a change in the price of the factor will have a smaller effect on the quantity of the factor demanded. Therefore, the more elastic the demand for the product is, the greater effect a change in the factor's price will have on the quantity of the factor demanded.

Question 9

A computer manufacturer's elasticity of demand for labor is not likely to be affected by the

Accepted Answer

The elasticity of demand for labor is not directly affected by the supply of computers, as it is more related to factors like demand for the product, cost ratios, and substitution possibilities.

Question 10

What happens when technological advance makes available a new highly productive capital good for which MP/P is greater than that of labor for which it is a substitute resource?

Accepted Answer

The new capital will replace labor because it is more productive and reduces the firms' costs. The firms will prefer to use the capital because it has a higher MP/P ratio, meaning its marginal product per unit of cost is higher than that of labor. As a result, the firms will use less labor and more of the new capital in order to maximize their profits.

Question 11

In which of the cases given below will the elasticity of demand for workers who produce yo-yos be most inelastic? The price elasticity of demand for yo-yos is

Accepted Answer

The answer of In which of the cases given below...

Question 12

Other things being equal, a labor union will find it harder to obtain a wage increase for its members the

Accepted Answer

If it is easier to substitute other resources for labor, the demand for labor becomes more elastic, making it harder for unions to negotiate higher wages without risking job losses.

Question 13

A union representative observed that if the union members' wages were increased by some proportion, the workers would eventually suffer a greater than proportional decline in employment. This statement could best be explained if

Accepted Answer

If union labor can easily be replaced with capital, employers might substitute labor with capital when wages increase, leading to a greater than proportional decline in employment.

Question 14

Assume that a purely competitive firm uses two resources, labor (L) and capital (C), to produce a certain product. In which situation would the firm be maximizing profit? $\begin{array}{|c|c|c|c|c|} 
\hline & \text { MRPL } & \text { MRPC } & \text { PL } & \text { PC } \
\hline \text { A } & \$ 100 & \$ 200 & \$ 300 & \$ 400 \
\hline \text { B } & \$ 100 & \$ 200 & \$ 200 & \$ 100 \
\hline \text { C } & \$ 150 & \$ 200 & \$ 150 & \$ 200 \
\hline \text { D } & \$ 300 & \$ 400 & \$ 300 & \$ 200\
\hline 
\end{array}$

Accepted Answer

In Case C, the marginal revenue product of labor (MRPL) is equal to the marginal revenue product of capital (MRPC), and the price of labor (PL) is equal to the price of capital (PC). This means that the firm is using the optimal combination of labor and capital to maximize profit.

Question 15

A firm is producing with the least-cost combination of resources when the

Accepted Answer

A firm achieves the least-cost combination of resources when the marginal product per dollar spent on each resource is equalized, ensuring that each dollar spent contributes equally to output.

Question 16

If a factor of production has many close substitutes, we would expect that its price elasticity of demand would be

Accepted Answer

If a factor of production has many close substitutes, then the demand for the factor is likely to be more elastic, meaning that a small change in the price would result in a large change in the quantity demanded. This is because buyers have more options to choose from, making them more sensitive to price changes. Therefore, we would expect the price elasticity of demand to be greater than one.

Question 17

In firm X labor costs are 85 percent of production costs, while in firm Y labor costs are 40 percent of production costs. A 20 percent increase in wages would increase production costs by

Accepted Answer

Let's assume that the total production cost for firm X is $100, with labor costs being 85% of $100, which is $85.

Therefore, if there is a 20% increase in wages, the new labor cost will be 1.2*$85=$102.

This will result in a new production cost of $100+$102=$202.

Hence, the percentage increase in production cost is (202-100)*100/100=102%.

Similarly, for firm Y, let's assume the total production cost is $100, with labor costs being 40% of $100, which is $40.

Therefore, if there is a 20% increase in wages, the new labor cost will be 1.2*$40=$48.

This will result in a new production cost of $100+$48=$148.

Hence, the percentage increase in production cost is (148-100)*100/100=48%.

Therefore, 20% increase in wages would increase production costs by 17% in firm X and 8% in firm Y (Option D).

Question 18

Other things being the same, if the demand for labor is inelastic,

Accepted Answer

When the demand for labor is inelastic, an increase in wage rates leads to a smaller percentage decrease in the quantity of labor demanded, resulting in an overall increase in total payrolls.

Question 19

If labor costs are 60 percent of production costs, then a 15 percent increase in wage rates would increase production costs by

Accepted Answer

A 15% increase in wage rates, which are 60% of production costs, results in a 9% increase in overall production costs (0.15 * 0.60 = 0.09 or 9%).

Question 20

The "least-cost combination of resources" to produce a given amount of output means that the output is produced at the lowest

Accepted Answer

The least-cost combination of resources means that the output is produced at the lowest average total cost (ATC) for that output. This is because a firm would want to minimize its cost of production while producing the desired output level. The other options, such as marginal cost (MC), price (P), and total revenue (TR) do not necessarily indicate the lowest cost of production.

Quiz 16: The Demand for Resources