Question 1

What is not true when thinking of the firm's objective as a cost-minimization problem rather than as a profit-maximization problem?

Accepted Answer

A) The slope at any point on any isoquant reveals the marginal rate of technical substitution. 
B) The firm chooses labor and capital to minimize its costs. 
C) The firm chooses a particular level of output to produce. 
D) The price of the output good never enters the decision as to how much labor or capital to employ. 
E) The firm will choose labor and capital inputs so that the marginal productivity of labor relative to the marginal productivity of capital equals the price of labor relative to the price of capital. 
A) The slope at any point on any isoquant reveals the marginal rate of technical substitution. 
B) The firm chooses labor and capital to minimize its costs. 
C) The firm chooses a particular level of output to produce. 
D) The price of the output good never enters the decision as to how much labor or capital to employ. 
E) The firm will choose labor and capital inputs so that the marginal productivity of labor relative to the marginal productivity of capital equals the price of labor relative to the price of capital. B

Question 2

For which reason is increasing the federal minimum wage not a good anti-poverty program?

Accepted Answer

A) It is very costly for the government. 
B) Roughly two-thirds of minimum wage earners are not the primary worker in their household. 
C) Increasing the federal minimum wage will likely increase employment opportunities. 
D) The minimum wage discriminates against minorities. 
E) The minimum wage discriminates against the young. 
A) It is very costly for the government. 
B) Roughly two-thirds of minimum wage earners are not the primary worker in their household. 
C) Increasing the federal minimum wage will likely increase employment opportunities. 
D) The minimum wage discriminates against minorities. 
E) The minimum wage discriminates against the young. B

Question 3

The cross-elasticity of labor with respect to capital is

Accepted Answer

A) the change in labor relative to a change in capital. 
B) the change in wages relative to a change in the price of capital. 
C) the percent change in labor relative to a percent change in capital. 
D) the percent change in wages relative to a percent change in the price of capital. 
E) the percent change in labor relative to a percent change in the price of capital. 
A) the change in labor relative to a change in capital. 
B) the change in wages relative to a change in the price of capital. 
C) the percent change in labor relative to a percent change in capital. 
D) the percent change in wages relative to a percent change in the price of capital. 
E) the percent change in labor relative to a percent change in the price of capital. E

Question 4

How does a profit-maximizing firm that is operating in a competitive labor market respond to an increase in the wage rate?

Accepted Answer

A) The firm will demand less capital due to the substitution effect. 
B) The firm will demand more labor due to the substitution effect. 
C) The firm will produce less output due to the scale effect. 
D) The firm will demand more capital due to the scale effect. 
E) The firm will demand more labor due to the scale effect. 
A) The firm will demand less capital due to the substitution effect. 
B) The firm will demand more labor due to the substitution effect. 
C) The firm will produce less output due to the scale effect. 
D) The firm will demand more capital due to the scale effect. 
E) The firm will demand more labor due to the scale effect.

Question 5

Which of the following statements is false?

Accepted Answer

A) Perfect substitutes are associated with linear isoquants. 
B) Perfect complements are associated with right-angled isoquants. 
C) The elasticity of substitution can be positive or negative. 
D) The more two factors are substitutes in the firm's production function, the greater is the elasticity of substitution. 
E) Perfect substitutes do not need to be employed in a 1-to-1 ratio by the firm. 
A) Perfect substitutes are associated with linear isoquants. 
B) Perfect complements are associated with right-angled isoquants. 
C) The elasticity of substitution can be positive or negative. 
D) The more two factors are substitutes in the firm's production function, the greater is the elasticity of substitution. 
E) Perfect substitutes do not need to be employed in a 1-to-1 ratio by the firm.

Question 6

Consider the following hypothetical difference-in-differences results concerning the average of hours worked in "big-box stores" between North and South Dakota before and after North Dakota increased its minimum wage.   The minimum wage increase is associated with average hours of working decreasing by how much per week in North Dakota relative to South Dakota?

Accepted Answer

A) 2.1 hours 
B) 11.7 hours 
C) 13.8 hours 
D) 15.9 hours 
E) 20.2 hours 
A) 2.1 hours 
B) 11.7 hours 
C) 13.8 hours 
D) 15.9 hours 
E) 20.2 hours

Question 7

Labor demand is more elastic the greater the elasticity of demand for the firm's output because

Accepted Answer

A) the firm would see its quantity demanded fall substantially if the firm tried to pass increased labor costs through to the consumer by increasing the price of the output good. 
B) the firm's output price falls when the firm produces less output. 
C) a firm that operates in a competitive output market cannot lower its price. 
D) capital is usually price elastic. 
E) the firm will want to hire fewer workers when the wage rate increases. 
A) the firm would see its quantity demanded fall substantially if the firm tried to pass increased labor costs through to the consumer by increasing the price of the output good. 
B) the firm's output price falls when the firm produces less output. 
C) a firm that operates in a competitive output market cannot lower its price. 
D) capital is usually price elastic. 
E) the firm will want to hire fewer workers when the wage rate increases.

Question 8

Adjustment costs are those costs

Accepted Answer

A) incurred by a firm as it transports its product from the factory to the marketplace. 
B) incurred by a firm when it pays its workers overtime. 
C) incurred by a firm as it changes the size of its workforce. 
D) saved by a firm as it takes advantage of tax credits offered by the government. 
E) saved by the firm when it sells one more unit of output. 
A) incurred by a firm as it transports its product from the factory to the marketplace. 
B) incurred by a firm when it pays its workers overtime. 
C) incurred by a firm as it changes the size of its workforce. 
D) saved by a firm as it takes advantage of tax credits offered by the government. 
E) saved by the firm when it sells one more unit of output.

Question 9

What is an example of the substitution effect?

Accepted Answer

A) Workers choose to provide more hours of labor when the wage rate decreases. 
B) Hiring more labor as long as the marginal product of labor is positive. 
C) The firm expands output when production costs fall. 
D) The firm expands output when production costs increase. 
E) The firm hires more labor when the wage falls because labor has become relatively cheaper compared to the price of other factors of production. 
A) Workers choose to provide more hours of labor when the wage rate decreases. 
B) Hiring more labor as long as the marginal product of labor is positive. 
C) The firm expands output when production costs fall. 
D) The firm expands output when production costs increase. 
E) The firm hires more labor when the wage falls because labor has become relatively cheaper compared to the price of other factors of production.

Question 10

How would imposing a minimum wage above the market clearing wage affect employment in a competitive labor market?

Accepted Answer

A) Employment would increase as previously unemployed workers would be more encouraged to find a job. 
B) Employment would increase because a higher minimum wage would create more jobs for low-skilled workers. 
C) Employment would increase as firms would illegally hire workers below the original competitive wage. 
D) Employment would be unchanged as workers are non-responsive to low wages. 
E) Employment would decrease as some workers who are willing to work at the lower competitive wage would no longer be able to find work. 
A) Employment would increase as previously unemployed workers would be more encouraged to find a job. 
B) Employment would increase because a higher minimum wage would create more jobs for low-skilled workers. 
C) Employment would increase as firms would illegally hire workers below the original competitive wage. 
D) Employment would be unchanged as workers are non-responsive to low wages. 
E) Employment would decrease as some workers who are willing to work at the lower competitive wage would no longer be able to find work.

Question 11

Ally owns a shoe store. The market wage is $10 per hour, and the cost of capital is $2 per week for every $1,000 of capital borrowed. Consider the isocost line associated with spending $8,000 per week, and let the y-axis be the amount of capital borrowed in $1,000s. Which of the following is not true?

Accepted Answer

A) If Ally borrows no capital, she can employ 800 hours of work. 
B) If Ally employs no workers, she can borrow $4 million of capital. 
C) If Ally employs 600 hours of work, she can borrow $1 million of capital. 
D) If Ally employs 400 hours of work, she can borrow $3 million of capital. 
E) The slope of the isocost line is -5. 
A) If Ally borrows no capital, she can employ 800 hours of work. 
B) If Ally employs no workers, she can borrow $4 million of capital. 
C) If Ally employs 600 hours of work, she can borrow $1 million of capital. 
D) If Ally employs 400 hours of work, she can borrow $3 million of capital. 
E) The slope of the isocost line is -5.

Question 12

The law of diminishing returns, as it applies to labor, means that

Accepted Answer

A) the marginal product of labor eventually declines. 
B) the marginal product of labor will eventually be a horizontal line at zero. 
C) the average product of labor increases at a decreasing rate. 
D) the average product of labor starts to decline before the marginal product of labor. 
E) total output eventually decreases. 
A) the marginal product of labor eventually declines. 
B) the marginal product of labor will eventually be a horizontal line at zero. 
C) the average product of labor increases at a decreasing rate. 
D) the average product of labor starts to decline before the marginal product of labor. 
E) total output eventually decreases.

Question 13

The elasticity of substitutions is

Accepted Answer

A) the change in capital over the change in the price of labor. 
B) the percentage change in capital over the percentage change in labor. 
C) the change in the price of capital over the change in the price of labor. 
D) the percentage change in the price of capital over the percentage change in the price of labor. 
E) the percentage change in the capital/labor ratio resulting from a 1 percent change in the relative price of labor. 
A) the change in capital over the change in the price of labor. 
B) the percentage change in capital over the percentage change in labor. 
C) the change in the price of capital over the change in the price of labor. 
D) the percentage change in the price of capital over the percentage change in the price of labor. 
E) the percentage change in the capital/labor ratio resulting from a 1 percent change in the relative price of labor.

Question 14

At what point should a firm stop hiring workers?

Accepted Answer

A) When the wage per worker starts to increase. 
B) When the price of capital starts to decrease. 
C) When the firm's marginal gain from hiring an additional worker is zero. 
D) When the firm's marginal profit from hiring an additional worker equals the cost of hiring that worker. 
E) When the firm's value of marginal product equals zero. 
A) When the wage per worker starts to increase. 
B) When the price of capital starts to decrease. 
C) When the firm's marginal gain from hiring an additional worker is zero. 
D) When the firm's marginal profit from hiring an additional worker equals the cost of hiring that worker. 
E) When the firm's value of marginal product equals zero.

Question 15

An effective affirmative action program

Accepted Answer

A) lowers the production costs of color-blind firms. 
B) lowers the production costs of discriminatory firms. 
C) increases profits of color-blind firms. 
D) makes discriminatory firms more inefficient. 
E) makes color-blind firms more efficient. 
A) lowers the production costs of color-blind firms. 
B) lowers the production costs of discriminatory firms. 
C) increases profits of color-blind firms. 
D) makes discriminatory firms more inefficient. 
E) makes color-blind firms more efficient.

Question 16

The marginal rate of technical substitution at any particular labor-capital bundle is

Accepted Answer

A) the slope of the isoquant. 
B) the average product of labor relative to the average product of capital. 
C) the wage relative to the cost of capital. 
D) the slope of the indifference curve. 
E) the ratio of labor to capital. 
A) the slope of the isoquant. 
B) the average product of labor relative to the average product of capital. 
C) the wage relative to the cost of capital. 
D) the slope of the indifference curve. 
E) the ratio of labor to capital.

Question 17

If the minimum wage applies to one sector (the covered sector) but not another sector (the uncovered sector), an increase in the minimum wage in the covered sector is likely to result in which of the following?

Accepted Answer

A) Greater employment in the covered sector. 
B) Less employment in the uncovered sector. 
C) A lower wage in the covered sector. 
D) A lower wage in the uncovered sector. 
E) Workers willingly leaving the covered sector for the uncovered sector in search of higher wages. 
A) Greater employment in the covered sector. 
B) Less employment in the uncovered sector. 
C) A lower wage in the covered sector. 
D) A lower wage in the uncovered sector. 
E) Workers willingly leaving the covered sector for the uncovered sector in search of higher wages.

Question 18

What is an example of the scale effect?

Accepted Answer

A) Workers choose to provide more hours of labor when the wage rate decreases. 
B) Hiring more labor as long as the marginal product of labor is positive. 
C) The firm expands output when production costs fall. 
D) The firm expands output when production costs increase. 
E) The firm hires more labor when the wage falls because labor has become relatively cheaper compared to the price of other factors of production. 
A) Workers choose to provide more hours of labor when the wage rate decreases. 
B) Hiring more labor as long as the marginal product of labor is positive. 
C) The firm expands output when production costs fall. 
D) The firm expands output when production costs increase. 
E) The firm hires more labor when the wage falls because labor has become relatively cheaper compared to the price of other factors of production.

Question 19

Labor demand is more elastic the greater the elasticity of substitution between labor and capital because

Accepted Answer

A) workers supply more labor when their wage increases. 
B) the firm's output price falls when the firm produces more output. 
C) a firm is less willing to pay higher labor costs if it is easy for the firm to substitute capital for labor. 
D) firms always have the option of substituting capital for labor. 
E) a firm's technology is slow to change. 
A) workers supply more labor when their wage increases. 
B) the firm's output price falls when the firm produces more output. 
C) a firm is less willing to pay higher labor costs if it is easy for the firm to substitute capital for labor. 
D) firms always have the option of substituting capital for labor. 
E) a firm's technology is slow to change.

Question 20

In the United States, the federal minimum wage is legislated in nominal terms. This means that

Accepted Answer

A) the federal minimum wage is indexed for inflation. 
B) the federal minimum wage historically decreases in value during stretches when the minimum wage is not increased. 
C) employers do not have to pay payroll taxes on wages paid to minimum wage workers. 
D) unemployed workers collect government assistance equal to the minimum wage. 
E) the government pays the minimum wage to all local, state, and federal workers. 
A) the federal minimum wage is indexed for inflation. 
B) the federal minimum wage historically decreases in value during stretches when the minimum wage is not increased. 
C) employers do not have to pay payroll taxes on wages paid to minimum wage workers. 
D) unemployed workers collect government assistance equal to the minimum wage. 
E) the government pays the minimum wage to all local, state, and federal workers.

What is not true when thinking of the firm's objective as a cost-minimization problem rather than as a profit-maximization problem?

For which reason is increasing the federal minimum wage not a good anti-poverty program?

The cross-elasticity of labor with respect to capital is

How does a profit-maximizing firm that is operating in a competitive labor market respond to an increase in the wage rate?

Which of the following statements is false?

Labor demand is more elastic the greater the elasticity of demand for the firm's output because

Adjustment costs are those costs

What is an example of the substitution effect?

How would imposing a minimum wage above the market clearing wage affect employment in a competitive labor market?

The law of diminishing returns, as it applies to labor, means that

The elasticity of substitutions is

At what point should a firm stop hiring workers?

An effective affirmative action program

The marginal rate of technical substitution at any particular labor-capital bundle is

If the minimum wage applies to one sector (the covered sector) but not another sector (the uncovered sector), an increase in the minimum wage in the covered sector is likely to result in which of the following?

What is an example of the scale effect?

Labor demand is more elastic the greater the elasticity of substitution between labor and capital because

In the United States, the federal minimum wage is legislated in nominal terms. This means that

Introduction to Labor Economics

Labor Supply

Labor Market Equilibrium

Compensating Wage Differentials

Human Capital

The Wage Structure

Labor Mobility

Labor Market Discrimination

Labor Unions

Incentive Pay

Unemployment

Filters

Exam 3: Labor Demand

What is not true when thinking of the firm's objective as a cost-minimization problem rather than as a profit-maximization problem?

For which reason is increasing the federal minimum wage not a good anti-poverty program?

The cross-elasticity of labor with respect to capital is

How does a profit-maximizing firm that is operating in a competitive labor market respond to an increase in the wage rate?

Which of the following statements is false?

Labor demand is more elastic the greater the elasticity of demand for the firm's output because

Adjustment costs are those costs

What is an example of the substitution effect?

How would imposing a minimum wage above the market clearing wage affect employment in a competitive labor market?

The law of diminishing returns, as it applies to labor, means that

The elasticity of substitutions is

At what point should a firm stop hiring workers?

An effective affirmative action program

The marginal rate of technical substitution at any particular labor-capital bundle is

If the minimum wage applies to one sector (the covered sector) but not another sector (the uncovered sector), an increase in the minimum wage in the covered sector is likely to result in which of the following?

What is an example of the scale effect?

Labor demand is more elastic the greater the elasticity of substitution between labor and capital because

In the United States, the federal minimum wage is legislated in nominal terms. This means that

Introduction to Labor Economics

Labor Supply

Labor Market Equilibrium

Compensating Wage Differentials

Human Capital

The Wage Structure

Labor Mobility

Labor Market Discrimination

Labor Unions

Incentive Pay

Unemployment

Filters