Question 1

The introduction of ATMs in the banking industry illustrates that ATMs

Accepted Answer

ATMs can replace labor in handling cash deposits and withdrawals, but they can complement labor in other banking functions such as customer service and sales. Therefore, they are both substitutes and complements for labor.

Question 2

Those who advocate the marginal productivity theory of income distribution argue that

Accepted Answer

Advocates of the marginal productivity theory of income distribution believe that in competitive markets, resource markets will determine incomes based on workers' contributions to the production of scarce goods and services. They argue that government policy should not be used to redistribute income based on need, and that family income should not be based on demand for products. However, the theory does not account for the effects of monopoly or monopsony power on resource payments and the distribution of income.

Question 3

Suppose that the production of wheat requires two inputs, labor and fertilizer. The price of labor is $4.50, and the price of fertilizer is $3.00. A farmer is currently employing the inputs such that the marginal product of labor is 11 and the marginal product of fertilizer is 8. If the farmer is a cost-minimizer, he should

Accepted Answer

The farmer should choose inputs in such a way that the ratio of marginal product to price is the same for both inputs. Let MP(L)/P(L) = MP(F)/P(F) = x. 
The current ratio of marginal product to price for labor = 11/4.5 ≈ 2.44 
The current ratio of marginal product to price for fertilizer = 8/3 ≈ 2.67 
In order to equalize the ratios, the farmer should use more fertilizer and less labor. This will increase the ratio of marginal product to price for labor and decrease the ratio for fertilizer. Hence, the answer is choice B.

Question 4

Suppose a competitive firm in both the resource and product markets is using inputs such that the marginal product of labor is 16 and the price of labor is $4 per unit, while the marginal product of capital is 12 and the price of capital is $3 per unit. At the maximum profit equilibrium point, the price of the product is

Accepted Answer

The profit-maximizing condition for a competitive firm is that the marginal product of labor divided by the price of labor equals the marginal product of capital divided by the price of capital. In this case, 16/4 = 12/3, which means that the price of the product must be $0.25.

Question 5

A firm combines two resources, A and B, to produce an output, Q. Their respective marginal revenue products are $30 and $21. A costs $15 a unit and B $7 a unit. To reduce the cost of Q,

Accepted Answer

The firm should use more of resource B and less of resource A because the marginal revenue product per dollar spent on B ($21/$7 = 3) is higher than that on A ($30/$15 = 2).

Question 6

Critics of the marginal productivity theory of income distribution claim that the theory is flawed because of

Accepted Answer

Critics argue that imperfect competition in markets for output and resources can affect the determination of wages and other factor payments, making the marginal productivity theory inadequate in explaining income distribution. Monopolies can exploit their power in the market and pay lower wages than the value of the marginal product of labor, while monopsonies can pay below the marginal revenue product of resources such as land or capital. These deviations from perfect competition mean that marginal productivity does not necessarily determine the distribution of income.

Question 7

A major criticism of the marginal productivity theory of income distribution is that

Accepted Answer

The marginal productivity theory assumes that factors of production are paid according to their marginal contributions to output. However, it does not account for the uneven distribution of property resources like land, which can lead to significant income inequality.

Question 8

A firm is producing 100 pencils per week. The production process requires labor and capital as inputs. Labor costs $6 per labor hour, and capital costs $12 per machine hour. Currently, the marginal product of labor is 18 pencils and the marginal product of capital is 36 pencils. To minimize the cost of producing this level of output, the firm should use

Accepted Answer

The answer of A firm is producing 100 pencils per...

Question 9

A firm will be hiring labor and capital in profit-maximizing amounts when

Accepted Answer

The answer of A firm will be hiring labor and...

Question 10

A firm is employing inputs such that the marginal product of labor is 25 and the marginal product of capital is 40. The price of labor is $5, and the price of capital is $8. If the firm wants to minimize costs, then it should

Accepted Answer

The answer of A firm is employing inputs such that...

Question 11

A business is employing inputs such that the marginal product of labor is 40 and the marginal product of capital is 90. The price of labor is $20, and the price of capital is $30. If the business wants to minimize costs while keeping output constant, then it should

Accepted Answer

To minimize costs while keeping output constant, the business should use the inputs in the ratio of their marginal product to their price. Here, the marginal product of capital is higher than the marginal product of labor, so to minimize costs, the business should use relatively more capital and relatively less labor. The ratio of the marginal product of labor to the price of labor is 40/20 = 2, and the ratio of the marginal product of capital to the price of capital is 90/30 = 3. Therefore, the business should use capital and labor in a ratio of 2:3, which means using relatively less labor and relatively more capital. Choice C matches this reasoning.

Question 12

A purely competitive firm in the factor and product markets sells its output for $1 and pays factors P_L= $4 and P_C= $3. What is the profit-maximizing combination of L and C for the firm? $\begin{array} { | c | c | c | c | } \hline \text { Q. } & \text { MPL } & \text { QC } & \text { MPC } \ \hline 1 & 28 & 1 & 18 \ \hline 2 & 24 & 2 & 15 \ \hline 3 & 20 & 3 & 12 \ \hline 4 & 16 & 4 & 9 \ \hline 5 & 9 & 5 & 6 \ \hline 6 & 4 & 6 & 3 \ \hline 7 & 2 & 7 & 2 \ \hline 8 & 1 & 8 & 1.5 \ \hline 9 & 0.5 & 9 & 1 \ \hline \end{array}$

Accepted Answer

The profit-maximizing condition is where the marginal product per dollar spent on each factor is equal. For L: MPL/PL = 1, and for C: MPC/PC = 1. At 6 of L and 6 of C, MPL/PL = 4/4 = 1 and MPC/PC = 3/3 = 1, satisfying the condition.

Question 13

The prices of resources are an important factor in the determination of money income.

Accepted Answer

The prices of resources, such as labor and capital, are a key input in the production process and ultimately affect the prices of goods and services. This, in turn, affects the wages and salaries paid to workers and the profits earned by businesses, which determine money income. Therefore, the prices of resources are an important factor in the determination of money income.

Question 14

The price of capital is $12 per machine-hour, and the price of labor is $3 per hour. The table gives production schedules for a firm, showing the possible combinations of capital and labor that will produce 100 units of output. Which combination will this cost-minimizing firm choose? $\begin{array}{|c|c|c|c|c|}
\hline \text { A } & \text { Labor: } 20 & \text { Capital: 5 } & \text { MPL: 5 } & \text { MPc: } 20 \
\hline \text { B } & \text { Labor: } 10 & \text { Capital: 10 } & \text { MPL : } 10 & \text { MPc: } 10 \
\hline \text { C } & \text { Labor: 5 } & \text { Capital: 20 } & \text { MPL: } 20 & \text { MPc: } 5 \
\hline \text { D } & \text { Labor: 4 } & \text { Capital: 25 } & \text { MPL : 25 } & \text { MPP: } 4 \
\hline
\end{array}$

Accepted Answer

The answer of The price of capital is $12 per...

Question 15

In the marginal productivity theory of income distribution, when all markets are purely competitive, the payment for each unit of a resource is equal to its

Accepted Answer

In the marginal productivity theory of income distribution, the payment for each unit of a resource is equal to its marginal revenue product. This means that the amount a unit of a resource is paid is equal to the additional revenue generated from using one more unit of that resource. This is because in a perfectly competitive market, the price of a resource is determined by its marginal revenue product. Therefore, choice (C) is the correct answer.

Question 16

272. cost-minimizing firm using two inputs, x and y, will employ inputs so that

Accepted Answer

A cost-minimizing firm will employ inputs such that the marginal product per dollar spent on each input is equal, i.e., $\mathrm { MP } _ { x } / P _ { x } = \mathrm { MP } _ { y } / P _ { y }$.

Question 17

A winner-takes-all market, like that for entertainers, exhibits huge differences between the top talents and the next tier of artists in all of the following aspects, except

Accepted Answer

In a winner-takes-all market, the difference in talent between the top artists and the next tier may not be as significant as the differences in earnings, media hype, and marginal revenue product.

Question 18

Before ATMs, the average bank branch employed 20 employees; after ATMs, the average branch employed 13 employees, but banks have opened more branches. These developments suggest that

Accepted Answer

The decrease in average employees per bank branch suggests that ATMs are substitutes for some bank functions that were previously performed by employees. However, the fact that banks have opened more branches suggests that the overall demand for banking services has increased, leading to more employment opportunities in different functions. Therefore, labor and ATMs are substitutes in some bank functions, complements in others.

Question 19

Assume that a purely competitive firm uses two resources, labor (L) and capital (C), to produce a product. In which situation would the firm be maximizing profit? $\begin{array}{|c|c|c|c|c|}
\hline & \text { MRPL } & \text { MRPC } & \text { PL } & \text { PC } \
\hline \text { A } & 20 & 40 & 60 & 80 \
\hline \mathrm{B} & 20 & 40 & 20 & 40 \
\hline \mathrm{C} & 30 & 30 & 20 & 20 \
\hline \mathrm{D} & 60 & 80 & 20 & 10 \
\hline
\end{array}$

Accepted Answer

The answer of Assume that a purely competitive firm uses...

Question 20

The introduction of automatic elevator equipment allowed firms to handle the movement of people in a multistory building at less cost, thus decreasing the demand for elevator operators. The best explanation for this change is that the

Accepted Answer

The introduction of automatic elevator equipment reduced the cost of handling the movement of people in a multistory building, which means the marginal product of automatic elevator equipment divided by its price was greater than that for elevator operators. Consequently, the demand for elevator operators decreased.

Quiz 16: The Demand for Resources