Question 1

Households' expenditure on goods and services are sources of revenue for the firms.

Accepted Answer

Households' expenditure on goods and services is a key source of revenue for firms as it represents the money that is spent on their products and services.

Question 2

A firm is said to be a monopsonist if it is the sole seller of a commodity in the market.

Accepted Answer

A monopsonist is not the sole seller, but the sole buyer of a commodity in the market.

Question 3

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 is because a monopsony is a market structure in which there is only one buyer of a certain good or service, and in the case of labor, this buyer is the employer. The employer can therefore influence the wage rate by choosing how many workers to hire. The profit-maximizing number of workers is where the additional revenue generated by hiring one more worker (marginal revenue product of labor) is equal to the additional cost of hiring one more worker (marginal factor cost of labor).

Question 4

Transfer earnings of a factor is equal to its:

Accepted Answer

Transfer earnings refer to the amount that a factor could earn in its next best alternative use. This is essentially the opportunity cost of using the factor in its current use. Therefore, the best choice is E - opportunity cost.

Question 5

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 6

A market is classified as a monopsony will arise when there is only one seller of the product.

Accepted Answer

A monopsony arises when there is only one buyer of a product, not one seller.

Question 7

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 8

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 9

A monopsonist firm faces a negatively sloped marginal factor cost curve.

Accepted Answer

The answer of A monopsonist firm faces a negatively sloped...

Question 10

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, each firm is a price taker and the price of the resource is determined by the intersection of the market demand and supply curves. Due to perfect competition, the marginal factor cost (the additional cost of employing one more unit of the resource) is equal to the price of the resource.

Question 11

If the government sets a minimum wage which is more than the equilibrium wage, the firms tend to demand more labor.

Accepted Answer

If the government sets a minimum wage which is higher than the equilibrium wage, it creates a surplus of labor as there will be more workers willing to work at the higher wage rate than the firms are willing to employ. This results in an increase in unemployment as the number of job seekers exceeds the number of job vacancies. Therefore, firms do not tend to demand more labor when the minimum wage is higher than the equilibrium wage.

Question 12

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

A negative slope on a demand curve indicates that as the price of a resource increases, the quantity demanded decreases, which is an inverse relationship.

Question 13

If the labor market is perfectly competitive the wage rate will be less than the marginal revenue product of labor.

Accepted Answer

If the labor market is perfectly competitive, the wage rate will equal the marginal revenue product of labor. This is because in a perfectly competitive market, firms cannot influence the price or quantity of goods or labor. As a result, they will hire workers up to the point where their marginal revenue product equals the wage rate, ensuring that they are maximizing profits.

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

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

Question 15

Monopsonists tend to exploit the resources as they are the sole employers of the resources.

Accepted Answer

Monopsonists have a significant bargaining power as they are the sole buyers of a particular resource, which allows them to lower the wages and working conditions of the employees, leading to exploitation.

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.
Refer to Scenario 14.1.If the worker joins Firm B, his opportunity cost is:

Accepted Answer

Opportunity cost is the cost of a foregone alternative. In this scenario, the worker's opportunity cost of joining Firm B is the income he would have earned if he stayed in Firm A, which is $5,000 per month. Therefore, the best choice is B, as the opportunity cost is equal to his current income in Firm A.

Question 17

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 18

Suppose 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

If the output of a firm increases by three units when an additional worker is hired, it means the marginal product of labor (MPL) is 3.

The firm will hire more laborers if the marginal revenue product (MRP) of labor is greater than or equal to the wage rate.

MRP = MPL x Marginal Revenue (MR)

Assuming the market price of the firm's product is $4, the MR is also $4 (in a perfectly competitive market, the MR of a firm is equal to the market price).

Therefore, MRP = 3 x 4 = $12.

Since the MRP of labor is greater than the wage rate of $9, the firm will hire more workers.

Question 19

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 20

The resource market comprises of the households and firms where the firms sell their resources to the households.

Accepted Answer

The resource market comprises of the households and firms where the households sell their resources (such as labor) to the firms. Firms do not sell resources to households in this market.

Quiz 24: Resource Markets