Question 1

All of the following statements regarding the marginal revenue product (MRP) curve and the demand for labor are true EXCEPT

Accepted Answer

A)  an individual firm's demand for labor is its MRP curve. 
B)  under conditions of perfect competition, MRP equals marginal physical product multiplied by the product's price. 
C)  an increase in the market demand for a given product decreases the product's price. 
D)  the demand for labor is a derived demand. 
A)  an individual firm's demand for labor is its MRP curve. 
B)  under conditions of perfect competition, MRP equals marginal physical product multiplied by the product's price. 
C)  an increase in the market demand for a given product decreases the product's price. 
D)  the demand for labor is a derived demand.

Question 2

When an input represents a small proportion of a firm's total costs, then

Accepted Answer

A)  demand for the input will tend to be less elastic. 
B)  the input demand will vary significantly with a change in input price. 
C)  the usage of the input cannot be varied in the production function. 
D)  output demand will be highly elastic. 
A)  demand for the input will tend to be less elastic. 
B)  the input demand will vary significantly with a change in input price. 
C)  the usage of the input cannot be varied in the production function. 
D)  output demand will be highly elastic.

Question 3

In labor markets, the substitution effect occurs when

Accepted Answer

A)  a substitute good also functions as a complement. 
B)  the cost of production falls enough that the firm will produce a larger amount of output. 
C)  a change in the price of a substitute input causes the demand for labor to change in the same direction. 
D)  a change in the price of a substitute input reduces the cost of capital. 
A)  a substitute good also functions as a complement. 
B)  the cost of production falls enough that the firm will produce a larger amount of output. 
C)  a change in the price of a substitute input causes the demand for labor to change in the same direction. 
D)  a change in the price of a substitute input reduces the cost of capital.

Question 4

The additional revenue earned from hiring one more worker is known as the

Accepted Answer

A)  marginal physical product of labor. 
B)  marginal revenue product of labor. 
C)  marginal factor cost of labor. 
D)  marginal utility of labor. 
A)  marginal physical product of labor. 
B)  marginal revenue product of labor. 
C)  marginal factor cost of labor. 
D)  marginal utility of labor.

Question 5

The marginal revenue product of labor is

Accepted Answer

A)  the marginal physical product multiplied by marginal revenue. 
B)  the marginal revenue of output multiplied by the price of the input. 
C)  total sales divided by total labor employed. 
D)  total labor employed divided by total sales. 
A)  the marginal physical product multiplied by marginal revenue. 
B)  the marginal revenue of output multiplied by the price of the input. 
C)  total sales divided by total labor employed. 
D)  total labor employed divided by total sales.

Question 6

-Refer to the above table. If the price of the good produced is $5, the marginal revenue product of the 7th worker is

Accepted Answer

A)  $125. 
B)  $385. 
C)  $5000. 
D)  $55. 
A)  $125. 
B)  $385. 
C)  $5000. 
D)  $55.

Question 7

Which of the following would NOT shift an industry's supply of labor curve?

Accepted Answer

A)  The wage rate in the particular industry falls. 
B)  Wage rates in industries using similar labor rise. 
C)  Working conditions within the industry become less desirable. 
D)  Wage rates in other industries fall. 
A)  The wage rate in the particular industry falls. 
B)  Wage rates in industries using similar labor rise. 
C)  Working conditions within the industry become less desirable. 
D)  Wage rates in other industries fall.

Question 8

The price elasticity of demand for a variable input will be more elastic in all the following cases EXCEPT

Accepted Answer

A)  the greater the price elasticity of demand for the final product. 
B)  the easier it is for a particular variable input to be substituted for by other inputs. 
C)  the larger the proportion of total costs accounted for by a particular variable input. 
D)  the shorter the time period being considered. 
A)  the greater the price elasticity of demand for the final product. 
B)  the easier it is for a particular variable input to be substituted for by other inputs. 
C)  the larger the proportion of total costs accounted for by a particular variable input. 
D)  the shorter the time period being considered.

Question 9

A rule of thumb in the employment of resources is to set

Accepted Answer

A)  marginal revenue product (MRP) equal to marginal factor cost (MF
C) . 
B)  marginal revenue (MR) equal to marginal cost (M
C) . 
C)  marginal physical product equal to marginal resource cost. 
D)  none of the above 
A)  marginal revenue product (MRP) equal to marginal factor cost (MF
C) . 
B)  marginal revenue (MR) equal to marginal cost (M
C) . 
C)  marginal physical product equal to marginal resource cost. 
D)  none of the above

Question 10

The price elasticity of demand for labor will be smaller, the

Accepted Answer

A)  smaller is the price elasticity of demand for the final product. 
B)  easier it is to employ substitute inputs in production. 
C)  larger is the proportion of wage costs in the total cost of production. 
D)  longer is the time period under examination. 
A)  smaller is the price elasticity of demand for the final product. 
B)  easier it is to employ substitute inputs in production. 
C)  larger is the proportion of wage costs in the total cost of production. 
D)  longer is the time period under examination.

Question 11

An increase in the productivity of labor induces

Accepted Answer

A)  an increase in the demand for labor. 
B)  an increase in the cost of labor. 
C)  a firm to hire fewer workers since fewer workers are needed with the increase in productivity. 
D)  a firm to offer a higher wage for workers since the workers are now more productive. 
A)  an increase in the demand for labor. 
B)  an increase in the cost of labor. 
C)  a firm to hire fewer workers since fewer workers are needed with the increase in productivity. 
D)  a firm to offer a higher wage for workers since the workers are now more productive.

Question 12

An increase in product price implies that

Accepted Answer

A)  the firm's marginal factor cost will increase. 
B)  the wage rate the firm pays will increase. 
C)  the firm's demand for labor increases. 
D)  the firm's demand for labor decreases. 
A)  the firm's marginal factor cost will increase. 
B)  the wage rate the firm pays will increase. 
C)  the firm's demand for labor increases. 
D)  the firm's demand for labor decreases.

Question 13

For a perfectly competitive firm, the value of the marginal product is

Accepted Answer

A)  the same thing as marginal factor cost. 
B)  the same thing as marginal physical product. 
C)  marginal physical product times the product price. 
D)  marginal physical product times the wage rate. 
A)  the same thing as marginal factor cost. 
B)  the same thing as marginal physical product. 
C)  marginal physical product times the product price. 
D)  marginal physical product times the wage rate.

Question 14

If MFC <   , the firm should

Accepted Answer

A)  hire more workers. 
B)  lower wages. 
C)  get rid of some capital. 
D)  reduce the number of workers. 
A)  hire more workers. 
B)  lower wages. 
C)  get rid of some capital. 
D)  reduce the number of workers.

Question 15

The demand for labor is

Accepted Answer

A)  derived from the demand for the final product of the firm. 
B)  derived from the satisfaction that hiring labor provides the owner of the firm. 
C)  derived from the satisfaction workers get for being employed. 
D)  derived from a utility-maximizing process similar to that used to derive the demand curve for all workers in a given industry. 
A)  derived from the demand for the final product of the firm. 
B)  derived from the satisfaction that hiring labor provides the owner of the firm. 
C)  derived from the satisfaction workers get for being employed. 
D)  derived from a utility-maximizing process similar to that used to derive the demand curve for all workers in a given industry.

Question 16

Sam, who owns a carpentry shop, discovered that with 4 laborers he could produce 18 cabinets per day. With 5 laborers he produced 25 cabinets and with 6 laborers he produced 36 cabinets. What was the MPP of the 6th laborer?

Accepted Answer

A)  11 cabinets 
B)  7 cabinets 
C)  36 cabinets 
D)  9 cabinets 
A)  11 cabinets 
B)  7 cabinets 
C)  36 cabinets 
D)  9 cabinets

Question 17

The marginal revenue product

Accepted Answer

A)  represents the incremental contribution to the firm's total revenues obtained from an increase in a variable input. 
B)  always increases when there is an increase in a variable input. 
C)  gives the increase in cost when there is an increase in a variable input. 
D)  gives the change in total product when an additional unit of a good is hired. 
A)  represents the incremental contribution to the firm's total revenues obtained from an increase in a variable input. 
B)  always increases when there is an increase in a variable input. 
C)  gives the increase in cost when there is an increase in a variable input. 
D)  gives the change in total product when an additional unit of a good is hired.

Question 18

Which of the following is FALSE regarding the general rule for hiring?

Accepted Answer

A)  Virtually every optimizing rule in economics involves comparing marginal benefits with marginal cost. 
B)  The benefit from added workers is extra output and consequently more revenues. 
C)  The firm hires workers up to the point at which the additional cost associated with hiring the last worker is equal to the additional revenue generated by that worker. 
D)  If any firm hired fewer workers over time, profits would definitely increase at that firm. 
A)  Virtually every optimizing rule in economics involves comparing marginal benefits with marginal cost. 
B)  The benefit from added workers is extra output and consequently more revenues. 
C)  The firm hires workers up to the point at which the additional cost associated with hiring the last worker is equal to the additional revenue generated by that worker. 
D)  If any firm hired fewer workers over time, profits would definitely increase at that firm.

Question 19

The marginal physical product (MPP) is calculated by

Accepted Answer

A)  dividing total physical product by labor. 
B)  dividing the change in total physical product by the change in the input. 
C)  dividing the change in total cost by the change in labor. 
D)  the difference between the output of skilled and unskilled workers. 
A)  dividing total physical product by labor. 
B)  dividing the change in total physical product by the change in the input. 
C)  dividing the change in total cost by the change in labor. 
D)  the difference between the output of skilled and unskilled workers.

Question 20

-In the above table, if this is a perfectly competitive firm and the market price of the product is $8, what is the marginal revenue product of worker 3?

Accepted Answer

A)  $96 
B)  $88 
C)  $80 
D)  $240 
A)  $96 
B)  $88 
C)  $80 
D)  $240

Exam 28: The Labor Market: Demand, Supply and Outsourcing

All of the following statements regarding the marginal revenue product (MRP) curve and the demand for labor are true EXCEPT

When an input represents a small proportion of a firm's total costs, then

In labor markets, the substitution effect occurs when

The additional revenue earned from hiring one more worker is known as the

The marginal revenue product of labor is

-Refer to the above table. If the price of the good produced is $5, the marginal revenue product of the 7th worker is

Which of the following would NOT shift an industry's supply of labor curve?

The price elasticity of demand for a variable input will be more elastic in all the following cases EXCEPT

A rule of thumb in the employment of resources is to set

The price elasticity of demand for labor will be smaller, the

An increase in the productivity of labor induces

An increase in product price implies that

For a perfectly competitive firm, the value of the marginal product is

If MFC < , the firm should

The demand for labor is

Sam, who owns a carpentry shop, discovered that with 4 laborers he could produce 18 cabinets per day. With 5 laborers he produced 25 cabinets and with 6 laborers he produced 36 cabinets. What was the MPP of the 6th laborer?

The marginal revenue product

Which of the following is FALSE regarding the general rule for hiring?

The marginal physical product (MPP) is calculated by

-In the above table, if this is a perfectly competitive firm and the market price of the product is $8, what is the marginal revenue product of worker 3?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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