Question 1

At Hamill Manufacturing of Alberta,highly skilled senior machinists are paid $70 000,excluding benefits,but the average-skilled machinist generates approximately $137 000 in value added.This difference means that the marginal productivity theory of income distribution doesn't hold.

Accepted Answer

The marginal productivity theory of income distribution suggests that workers are paid according to the value of their marginal contribution to the production process. The difference in pay and value added does not necessarily disprove this theory, as other factors such as benefits, market conditions, and company policies can influence wages.

Question 2

The equilibrium value of the marginal product of a factor is the additional value produced by the most productive unit of that factor employed in the factor market as a whole.

Accepted Answer

The equilibrium value of the marginal product of a factor is the additional value produced by the last unit of that factor employed, not the most productive unit.

Question 3

If a perfectly competitive firm chooses its level of output so that price equals marginal revenue,the value of the marginal product of labour will equal the wage rate.

Accepted Answer

The answer of If a perfectly competitive firm chooses its...

Question 4

The equilibrium value of the marginal product of a factor is the additional value produced by the last unit of that factor employed in the factor market as a whole.

Accepted Answer

This statement is true. The equilibrium value of the marginal product of a factor is determined by the intersection of the supply and demand curves in the factor market. At this point, the additional value produced by the last unit of the factor employed is equal to the price of the factor.

Question 5

The marginal productivity theory of income distribution assumes that factor markets are oligopolies.

Accepted Answer

The marginal productivity theory of income distribution assumes perfect competition in factor markets, where there are many buyers and sellers and no single buyer or seller has enough market power to affect the price of the factor of production.

Question 6

A profit-maximizing producer employs each factor of production up to the point at which the value of the marginal product of the last unit of the factor employed is equal to the price per unit of output.

Accepted Answer

A profit-maximizing producer employs each factor of production up to the point at which the value of the marginal product of the last unit of the factor employed is equal to the factor's price, not the price per unit of output.

Question 7

Assume that perfect competition exists in output and factor markets.The P = MC rule for profit maximization implies the same level of labour use that would be implied by using the VMPL = W rule.

Accepted Answer

In perfect competition, price equals marginal revenue, and the profit-maximizing output level occurs where P = MC. The cost of labor, represented by the wage rate (W), is equal to the value of the marginal product of labor (VMPL) in perfect competition. Thus, if a firm is a price taker in both the output and factor markets, then the level of labor use that maximizes profit by producing the optimal level of output will also be the level of labor use that equates VMPL and W. Therefore, the P = MC rule implies the same level of labor use as the VMPL = W rule in perfect competition.

Question 8

According to the marginal productivity theory of income distribution,if a unit of labour is paid more than a unit of capital,it is because,at the equilibrium quantity of each factor,the value of the marginal product of labour is proportionately greater than the value of the marginal product of capital.

Accepted Answer

According to the marginal productivity theory of income distribution, the relative payment of the factors of production depends on the value of their marginal productivity. If a unit of labor is paid more than a unit of capital, it means that the marginal product of labor is greater than the marginal product of capital at the equilibrium quantity of each factor. Therefore, the statement is true.

Question 9

According to the marginal productivity theory of income distribution,in a competitive economy,each factor of production is paid its equilibrium value of the marginal product.

Accepted Answer

The marginal productivity theory of income distribution argues that in a competitive economy, each factor of production (such as labor or capital) is paid its equilibrium value of the marginal product, which is the additional output that results from adding one more unit of the factor. This suggests that factors of production receive their marginal contribution to the production process, which is determined by market forces of supply and demand.

Question 10

If the demand for orange juice increases,the derived demand for orange grove workers will decrease.

Accepted Answer

If the demand for orange juice increases, it would require more oranges to make the juice, which in turn would increase the demand for orange grove workers to pick the oranges. Therefore, the derived demand for orange grove workers would increase, not decrease.

Question 11

At Hamill Manufacturing of Alberta,highly skilled senior machinists are paid $70 000,excluding benefits,but the average-skilled machinist generates approximately $137 000 in value added.This is partially because diminishing returns to labour cause the value of the marginal product of the last machinist hired to be greater than the average of all of the machinists employed.

Accepted Answer

Diminishing returns to labor imply that the value of the marginal product of the last machinist hired would be less than the average of all machinists employed, not greater.

Question 12

The marginal productivity theory of income distribution assumes that factor markets are perfectly competitive.

Accepted Answer

The marginal productivity theory assumes perfect competition in factor markets, meaning that the prices paid for each factor are determined solely by supply and demand forces.

Question 13

According to the marginal productivity theory of income distribution,every factor of production is paid a wage equal to the equilibrium value of its marginal product.

Accepted Answer

The marginal productivity theory of income distribution states that in a perfectly competitive market, each factor of production (such as labor, capital, and land) is paid a wage or return equal to the additional output it generates, which is known as its marginal product. Therefore, the statement is true.

Question 14

Although improved technology can either increase or decrease the demand for a factor of production,the usual effect of technological progress is to reduce demand for labour,holding everything else constant.

Accepted Answer

Technological progress can increase demand for labor by creating new industries and jobs, even as it may reduce demand in others.

Question 15

Your boss is trying to decide whether to buy out a rival company and asks for your advice.The boss says that she will buy the rival if there is evidence that the rival is operating inefficiently.(Your company will then improve its efficiency and increase profits. )She will not buy the rival if there is evidence that the rival is already operating efficiently.Your boss gives you the following data on the rival's operations: The average product of labour is 4,the marginal product of the last worker hired is 10,the wage is $20,and the price of output is $5.Based on this information,you should tell your boss to buy the rival.

Accepted Answer

Based on the given information, we can calculate the rival's marginal revenue product (MRP) as follows:

MRP = Price x Marginal Product of Labor 
MRP = $5 x 10 
MRP = $50

The rival's cost of hiring an additional worker (the wage) is $20, which means that the rival is making a profit of $30 ($50 - $20) for each additional worker hired. This indicates that the rival is operating efficiently, since it is earning a profit on each unit of labor. Therefore, your boss should buy the rival, since her plan is to acquire an inefficient firm and improve its efficiency to increase profits.

Question 16

The marginal productivity theory of income distribution is based on the assumption that factor markets are perfectly competitive.

Accepted Answer

The marginal productivity theory of income distribution assumes perfect competition in factor markets, meaning that there are many buyers and sellers of labor and capital with no individual seller or buyer having the power to influence the market price.

Question 17

Suppose that the factor market for computer engineers is competitive in India and Canada,but Indian engineers earn one-fifth of what Canadian engineers earn.This means that engineers in India are price takers,but engineers in Canada are not.

Accepted Answer

In a competitive market, both Indian and Canadian engineers are price takers. The wage difference could be due to other factors like cost of living, demand, and supply differences, not the competitiveness of the market.

Question 18

According to the marginal productivity theory of income distribution,every factor of production is paid a wage equal to the equilibrium value of its average product.

Accepted Answer

According to the marginal productivity theory of income distribution, every factor of production is paid a wage equal to the equilibrium value of its marginal product, not its average product.

Question 19

The clearest sign of discrimination against an individual is that they are paid less than the value of their marginal productivity.

Accepted Answer

Discrimination can manifest in various ways, not solely through pay discrepancies. Being paid less than the value of one's marginal productivity can be due to other factors like market conditions or negotiation skills, not just discrimination.

Question 20

According to the marginal productivity theory of income distribution,if a unit of labour is paid more than a unit of capital,it is because,at the equilibrium quantity of each factor,the value of the marginal product of labour is equal to the value of the marginal product of capital.

Accepted Answer

The marginal productivity theory of income distribution states that each factor of production is paid according to its marginal product. If labor is paid more than capital, it is because the value of the marginal product of labor is higher than that of capital, not because they are equal.

Quiz 19: Factor Markets and the Distribution of Income