Question 1

A firm should make an investment only if

Accepted Answer

A) it is profitable in every year. 
B) the present value of the profits exceeds the present value of the costs. 
C) the present value of the revenues exceeds the present value of the costs. 
D) there are no large losses in the early years. 
A) it is profitable in every year. 
B) the present value of the profits exceeds the present value of the costs. 
C) the present value of the revenues exceeds the present value of the costs. 
D) there are no large losses in the early years.

Question 2

What is the distinction between innovation and invention?

Accepted Answer

Invention is the act of genera

Question 3

Marginal land can be defined as land that earns neither profits nor losses.

Accepted Answer

A) True 
 B)False

Question 4

In Japan, the market value of the land is approximately four times that of all the land in the United States, even though Japan is only about the size of California.The most likely explanation for this fact is

Accepted Answer

A) greater demand for land in Japan relative to the supply than in the United States. 
B) land is very productive in Japan. 
C) land is not fixed in supply in the United States. 
D) Japanese workers are very productive. 
A) greater demand for land in Japan relative to the supply than in the United States. 
B) land is very productive in Japan. 
C) land is not fixed in supply in the United States. 
D) Japanese workers are very productive.

Question 5

What is the relevance of the marginal productivity principle in explaining the use of inputs in production?

Accepted Answer

According to the marginal productivity p

Question 6

All the land in a California valley is owned by one person.The supply of land is fixed and is rented each year to farmers who bid for it in an open auction.Given the rents they must pay, the farmers barely earn subsistence.Sympathy for the poor farmers leads the state to bring in irrigation facilities to raise the productivity of the farms and raise the farmers' income.The most likely outcome is

Accepted Answer

A) the farmers will prosper. 
B) the farmers and the landlord will share the new prosperity. 
C) only the landlord will prosper. 
D) no one will prosper. 
A) the farmers will prosper. 
B) the farmers and the landlord will share the new prosperity. 
C) only the landlord will prosper. 
D) no one will prosper.

Question 7

The marginal productivity principle demonstrates that distribution under a capitalist system is ethically valid.

Accepted Answer

A) True 
 B)False

Question 8

Discounting or computing present value is a way of comparing dollar values that will appear at different points in time.

Accepted Answer

A) True 
 B)False

Question 9

A profit-maximizing firm will hire inputs until MRP = P of the input.

Accepted Answer

A) True 
 B)False

Question 10

Demand for an input is derived from the demand for the final product.

Accepted Answer

A) True 
 B)False

Question 11

Capital is appropriately classified as a

Accepted Answer

A) flow. 
B) process. 
C) stock. 
D) growth rate. 
A) flow. 
B) process. 
C) stock. 
D) growth rate.

Question 12

Usury laws that set maximum interest rates

Accepted Answer

A) are designed to protect the consumer. 
B) interfere with the market allocation process. 
C) have an effect only if the market rate is higher than the legal maximum. 
D) All of the above are correct. 
A) are designed to protect the consumer. 
B) interfere with the market allocation process. 
C) have an effect only if the market rate is higher than the legal maximum. 
D) All of the above are correct.

Question 13

Critics of the huge net returns on, for example, oil production will claim that the returns are

Accepted Answer

A) interest on the capital investment. 
B) rents on a natural resource. 
C) profits on entrepreneurial activity. 
D) exorbitant and should be taxed away. 
A) interest on the capital investment. 
B) rents on a natural resource. 
C) profits on entrepreneurial activity. 
D) exorbitant and should be taxed away.

Question 14

A sum of money to be received in the future is worth more than a sum of money today.

Accepted Answer

A) True 
 B)False

Question 15

Which factor of production receives the greatest share of the U.S.national income?

Accepted Answer

A) land 
B) labor 
C) capital 
D) entrepreneurship 
A) land 
B) labor 
C) capital 
D) entrepreneurship

Question 16

The demand curve for funds is downward sloping because

Accepted Answer

A) the value of the MRP in terms of today's money shrinks as the interest rate rises. 
B) future returns must be discounted more when the interest rate rises. 
C) as the interest rate rises, more and more investments become unprofitable. 
D) All of the above are correct. 
A) the value of the MRP in terms of today's money shrinks as the interest rate rises. 
B) future returns must be discounted more when the interest rate rises. 
C) as the interest rate rises, more and more investments become unprofitable. 
D) All of the above are correct.

Question 17

Demand for inputs is a derived demand because

Accepted Answer

A) it is derived from the need for income. 
B) it corresponds to the derived supply of the inputs. 
C) producers want the input to produce the finished good. 
D) it is downward sloping. 
A) it is derived from the need for income. 
B) it corresponds to the derived supply of the inputs. 
C) producers want the input to produce the finished good. 
D) it is downward sloping.

Question 18

The marginal revenue product

Accepted Answer

A) tells how many dollars the marginal physical product is worth. 
B) is the marginal physical product times price of the product under perfect competition. 
C) is the marginal physical product times marginal revenue. 
D) All of the above are correct. 
A) tells how many dollars the marginal physical product is worth. 
B) is the marginal physical product times price of the product under perfect competition. 
C) is the marginal physical product times marginal revenue. 
D) All of the above are correct.

Question 19

If the credit market is close to being a competitive market, an interest rate ceiling imposed by usury laws will bring misallocations of resources.

Accepted Answer

A) True 
 B)False

Question 20

The difference between the cost of production on a piece of land less the cost of production on marginal land is called

Accepted Answer

A) usury. 
B) profit. 
C) rent. 
D) interest. 
A) usury. 
B) profit. 
C) rent. 
D) interest.

Exam 18: Pricing the Factors of Production

A firm should make an investment only if

What is the distinction between innovation and invention?

Marginal land can be defined as land that earns neither profits nor losses.

In Japan, the market value of the land is approximately four times that of all the land in the United States, even though Japan is only about the size of California.The most likely explanation for this fact is

What is the relevance of the marginal productivity principle in explaining the use of inputs in production?

The marginal productivity principle demonstrates that distribution under a capitalist system is ethically valid.

Discounting or computing present value is a way of comparing dollar values that will appear at different points in time.

A profit-maximizing firm will hire inputs until MRP = P of the input.

Demand for an input is derived from the demand for the final product.

Capital is appropriately classified as a

Usury laws that set maximum interest rates

Critics of the huge net returns on, for example, oil production will claim that the returns are

A sum of money to be received in the future is worth more than a sum of money today.

Which factor of production receives the greatest share of the U.S.national income?

The demand curve for funds is downward sloping because

Demand for inputs is a derived demand because

The marginal revenue product

If the credit market is close to being a competitive market, an interest rate ceiling imposed by usury laws will bring misallocations of resources.

The difference between the cost of production on a piece of land less the cost of production on marginal land is called

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

Securities: Business Finance and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets: the Price System

The Shortcomings of Free Markets

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

Is Useconomic Leadership Threatened

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation

Bringing in the Supply Side: Unemployment and Inflation

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

He Financial Crisis and the Great Recession

The Debate Over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder

Exchange Rates and the Macroeconomy

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