Question 1

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-If the resource market is perfectly competitive, the marginal factor cost is equal to the price of the resource.

Accepted Answer

In a perfectly competitive resource market, the marginal factor cost is equal to the price of the resource. Therefore, if Firm B is able to offer a higher salary of $7,000 per month for the same type of worker, it suggests that the price of labor in the market has increased, and the worker's marginal factor cost has also increased accordingly.

Question 2

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-A monopsonist firm faces a negatively sloped marginal factor cost curve.

Accepted Answer

A monopsonist firm faces an upward-sloping marginal factor cost curve, not a negatively sloped one.

Question 3

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-If the marginal factor cost is greater than the marginal revenue product of a resource, the producer can increase profits by laying off some units of the resource.

Accepted Answer

If the marginal factor cost (the cost of employing an additional unit of a resource) is greater than the marginal revenue product (the additional revenue generated by employing one more unit of the resource), it implies that the cost of employing the resource is not justified by the revenue it generates. Therefore, by laying off some units of the resource, the producer can reduce costs without proportionately reducing revenue, thereby potentially increasing profits.

Question 4

The figure given below represents equilibrium in the labor market with the demand and supply curves of labor.Figure 14.6
In the figure,
D = MRP implies demand for labor = Marginal Revenue Product
MFC represents Marginal Factor Cost curve
S represents the supply curve of labor
 
-If a person is earning $80,000 per year as a dentist and could earn at most $45,000 per year doing something else, his transfer earnings are ____, whereas his economic rent is ____.

Accepted Answer

Transfer earnings are the earnings that a factor of production (in this case, the person's labor) could receive in its next best alternative use, which is $45,000. Economic rent is the difference between what a factor is actually earning and what it could earn in the next best alternative, which is $80,000 - $45,000 = $35,000.

Question 5

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-Suppose the output of a firm hiring workers in a competitive labor market increases by three units when an additional worker is hired. This firm will hire more laborers if the market price of its product is $4 and the wage rate is $9. [Hint: Marginal revenue product of a resource is equal to the product of marginal product of the resource and the marginal revenue of the firm.]

Accepted Answer

The worker will have a higher opportunity cost of working at Firm A since he can earn a higher salary at Firm B, so he will likely choose to switch jobs. In addition, the firm in the labor market described will hire more laborers if the market price of its product is greater than or equal to the wage rate divided by the marginal product of labor (which is 3 in this scenario), so with a market price of $4 and a wage rate of $9, the firm will hire more laborers. Therefore, both statements in the scenario are true.

Question 6

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-If the price of a product increases, the demand for the resource used in producing that product decreases.

Accepted Answer

The statement given is unrelated to the scenario mentioned. The scenario only discusses a worker switching jobs and does not involve any changes in demand for resources. Therefore, the answer is false.

Question 7

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-Refer to Scenario 14.1. If the worker joins Firm B, his opportunity cost is:

Accepted Answer

Opportunity cost refers to the next best alternative forgone. In this case, the worker's opportunity cost of joining Firm B is the salary he would have earned if he had stayed in Firm A, which is $5,000 per month. Therefore, the answer is B.

Question 8

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-A market is classified as a monopsony when there is only one seller of the product.

Accepted Answer

The definition of a monopsony is when there is only one buyer of a particular good or service in a market. Firm A and Firm B are both potential employers, not buyers of a specific product, so this scenario does not relate to a monopsony.

Question 9

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-A firm is said to be a monopsonist if it is the sole seller of a commodity in the market.

Accepted Answer

The definition of a monopsonist is the sole buyer of a commodity in the market, not the sole seller.

Question 10

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-Because of their derived nature, resource markets are completely different from any other type of market studied by economists.

Accepted Answer

Resource markets, like labor markets where individuals sell their labor to firms, are analyzed by economists using similar principles as other markets, such as the principles of supply and demand, even though they involve the trading of resources rather than finished goods or services.

Question 11

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-If the labor market is perfectly competitive the wage rate will be less than the marginal revenue product of labor.

Accepted Answer

The answer of Scenario 14.1
A worker in Firm A earns...

Question 12

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-The resource market comprises of households and firms where the firms sell their resources to the households.

Accepted Answer

The scenario does not provide enough information to determine whether the statement is true or false. It only presents the situation of one worker considering a job offer, and does not provide enough context to make a determination about the entire resource market.

Question 13

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-The negative slope of the demand curve of a resource indicates an inverse relationship between the price of the resource and the quantity demanded.

Accepted Answer

This statement is true as per the law of demand, which states that as the price of a resource (or any good or service) increases, the quantity demanded decreases, and vice versa. Therefore, the demand curve of a resource will have a negative slope to represent this inverse relationship between price and quantity demanded.

Question 14

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-Refer to Scenario 14.1. If the worker joins Firm B, his economic rent is:

Accepted Answer

Economic rent is the extra amount the worker earns over what he would be willing to work for. In this case, it's the difference between the new salary ($7,000) and the old salary ($5,000), which is $2,000.

Question 15

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-Burger King has a direct demand for the cheese which it uses in its burgers.

Accepted Answer

The scenario only provides information about the worker's job offer and does not mention anything about Burger King's demand for cheese.

Question 16

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-If the government sets a minimum wage which is more than the equilibrium wage, the firms tend to demand more labor.

Accepted Answer

The scenario does not provide any information about the government setting a minimum wage higher than the equilibrium wage. Therefore, it is not possible to determine if firms would demand more labor in such a situation.

Question 17

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-The profit-maximizing number of workers for a monopsony to employ is derived at the point where the marginal revenue product of labor is equal to the marginal factor cost of labor.

Accepted Answer

This statement is true. Monopsony firms have the ability to influence wages in the labor market due to their market power. To maximize profits, a monopsony firm will employ workers until the marginal revenue product of labor (MRPL) is equal to the marginal factor cost of labor (MFC). This is the point where the additional revenue generated by hiring one more worker is equal to the additional cost of hiring that worker.

Question 18

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-Households' expenditure on goods and services are sources of revenue for the firms.

Accepted Answer

This statement is true. Firms rely on households' expenditure on goods and services to generate revenue. The income earned by the worker in Firm B is an example of this expenditure.

Question 19

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-If government-assured medical and other benefits increase the labor costs, everything else remaining constant, then firms will tend to hire more of the other resources instead of labor.

Accepted Answer

When labor costs increase due to additional expenses like government-assured medical and other benefits, firms may seek cost-effective alternatives, such as automation or outsourcing, to maintain profitability, thus hiring less labor.

Question 20

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-Monopsonists tend to exploit the resources as they are the sole employers of the resources.

Accepted Answer

Monopsonists have market power as they are the sole employers of the resources in a particular market. This market power enables them to pay a lower wage rate than would prevail in a competitive labor market. Therefore, workers may be exploited or receive lower pay than they would in a competitive labor market. In the given scenario, Firm B may be a monopsonist and could potentially offer a lower wage than the worker's marginal productivity would justify.

Quiz 15: Resource Markets

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month. -If the resource market is perfectly competitive, the marginal factor cost is equal to the price of the resource.

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month. -A monopsonist firm faces a negatively sloped marginal factor cost curve.

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month. -If the price of a product increases, the demand for the resource used in producing that product decreases.

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month. -Refer to Scenario 14.1. If the worker joins Firm B, his opportunity cost is:

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month. -A market is classified as a monopsony when there is only one seller of the product.

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month. -A firm is said to be a monopsonist if it is the sole seller of a commodity in the market.

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month. -Because of their derived nature, resource markets are completely different from any other type of market studied by economists.

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month. -If the labor market is perfectly competitive the wage rate will be less than the marginal revenue product of labor.

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month. -The resource market comprises of households and firms where the firms sell their resources to the households.

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month. -Refer to Scenario 14.1. If the worker joins Firm B, his economic rent is:

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month. -Burger King has a direct demand for the cheese which it uses in its burgers.

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month. -If the government sets a minimum wage which is more than the equilibrium wage, the firms tend to demand more labor.

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month. -Households' expenditure on goods and services are sources of revenue for the firms.

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month. -Monopsonists tend to exploit the resources as they are the sole employers of the resources.