Question 1

You have been hired by the No Hassle Collection Agency to provide economic advice. The owner of the agency tells you that No Hassle's only variable input is the number of collection agents. The hourly wage for collection agents is $30.00. The marginal revenue product curve for collection agents reaches its maximum at five workers with a marginal revenue product of $34.00. What advice would you give this firm?

Accepted Answer

A)  Hire five collection so as to maximize profits. 
B)  Shut down immediately, as the firm is not able to cover all of its variable costs. 
C)  Decrease the wage rate paid to collection agents so that their marginal revenue product will decrease. 
D)  Hire collection agents until the marginal revenue product is equal to the wage-which will occur when more than five agents are employed.

Question 2

If Tie-Dyed T-Shirts is currently employing labor so that the wage is greater than the marginal revenue product of labor, it must also be true that

Accepted Answer

A)  total revenues would be less than total costs. 
B)  the wage is less than marginal cost. 
C)  the price of the product must be less than marginal cost. 
D)  the price of the product must be greater than marginal cost.

Question 3

A wheat farmer sells wheat in a perfectly competitive market and hires labor in a perfectly competitive market. The market price of wheat is $2 a bushel, the wage rate is $10, and the farmer employs five workers. If the farmer is maximizing his profits, then the marginal product of the fifth worker is

Accepted Answer

A)  0.2 bushels. 
B)  5 bushels. 
C)  20 bushels. 
D)  indeterminate from the given information

Question 4

The demand for ________ is a ʺderived demand.ʺ

Accepted Answer

A)  ice cream cones on a hot day 
B)  tax-free municipal bonds 
C)  a hair stylist by a salon owner 
D)  a birthday cake for your brother

Question 5

Related to the Economics in Practice on page 221: Because land is demand determined, an acre of land in downtown Harlingen, Texas ________ an acre of land in downtown Chicago, Illinois.

Accepted Answer

A)  would most likely cost more than 
B)  would most likely cost less than 
C)  should cost approximately the same as 
D)  would cost exactly the same as

Question 6

The law of diminishing marginal returns explains why a marginal revenue product schedule

Accepted Answer

A)  first declines and then increases. 
B)  is always negative. 
C)  eventually increases. 
D)  eventually declines.

Question 7

Bonita's Braidworks hires workers to braid hair. The store sells the service for $25 per customer. The marginal revenue product of this storeʹs fifth worker is $50. The marginal product of the fifth worker is

Accepted Answer

A)  0.5 braided customers. 
B)  2 braided customers. 
C)  25 braided customers. 
D)  indeterminate from this information.

Question 8

Rent depends on what the potential users of the land are willing to pay for it.

Accepted Answer

A) True 
 B)False

Question 9

Liu's Potato Chips is a perfectly competitive firm currently employing 30 workers. The marginal revenue product of the 30th worker is $7.00 per hour. The wage rate is $8.00 per hour. To increase profits, this firm should

Accepted Answer

A)  decrease employment until the MRP of labor equals $8.00. 
B)  increase employment until the MRP of labor equals $8.00. 
C)  continue hiring 30 workers because the firm earns a surplus of $1.00 on each worker hired. 
D)  increase the price of potato chips so that the marginal revenue product increases to $8.00 per hour.

Question 10

Tony's Lawn Service uses only one variable input, fertilizer. The firm's demand curve for fertilizer in the short run is the input's

Accepted Answer

A)  total product curve. 
B)  marginal product curve. 
C)  marginal revenue product curve. 
D)  total cost curve.

Question 11

Shifts in factor demand result from changes in

Accepted Answer

A)  demand for outputs. 
B)  the quantity of other factors with which it works. 
C)  the price of other inputs. 
D)  All of the above are correct.

Question 12

The marginal revenue product of labor is

Accepted Answer

A)  the additional revenue a firm earns by employing one additional unit of labor. 
B)  the additional profit a firm earns by employing one additional unit of labor. 
C)  the marginal product of capital times the price of labor. 
D)  the additional revenue the firm makes by selling one unit of labor.

Question 13

Refer to the data provided in Table 10.1 below to answer the following question(s).
Table 10.1 $$\begin{array}{l}
\text { Total Labor Units } \quad \text { Total Product } \quad \text { Marginal Product of Price per }\
\begin{array} { c c c c } 
\text { (employees) } & \text { (T-shirts per day) } & \text { Labor (per day) } & \text { T-shirt } \
\hline 0 & 0 & - & - \
1 & 20 & 20 & \$ 5 \
2 & 50 & 30 & 5 \
3 & 75 & 25 & 5 \
4 & 95 & 20 & 5 \
5 & 110 & 15 & 5
\end{array}
\end{array}$$
-Refer to Table 10.1. If the payment to labor per day is $125, this T-shirt manufacturer is maximizing profits if he will hire ________ employees.

Accepted Answer

A)  two 
B)  three 
C)  four 
D)  five

Question 14

The supply of land is perfectly elastic.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is related to the additional revenues business owners expect to enjoy as a result of hiring the employee?

Accepted Answer

A)  the salary of Dallas Mavericks' player Dirk Nowitski 
B)  the wages for Wendy Peffercorn, a cashier at the Piggly Wiggly 
C)  the signing bonus for Saul Goodman, a new attorney at the Hamlin, Hamlin, and McGill law firm 
D)  All of the above are correct.

Question 16

In general, the production and use of capital ________ the productivity of labor and normally ________ wages.

Accepted Answer

A)  enhances; drives up 
B)  enhances; drives down 
C)  diminishes; drives down 
D)  has no effect on; has no effect on

Question 17

Related to the Economics in Practice on page 221: Because land is demand determined, an acre of land in downtown San Francisco, California ________ an acre of land in downtown Knoxville, Tennessee.

Accepted Answer

A)  would most likely cost more than 
B)  would most likely cost less than 
C)  should cost approximately the same as 
D)  would cost exactly the same as

Question 18

Firms will hire additional workers only as long as the value of their product is less than the relevant market wage.

Accepted Answer

A) True 
 B)False

Question 19

If the supply of labor increases, which of the following events will occur?

Accepted Answer

A)  The wage rate will fall and firms will increase employment up until the point where MRP equals the new wage rate. 
B)  The wage rate will fall and firms will decrease employment to the point where MRP equals the new wage rate. 
C)  The wage rate will increase and firms will decrease employment to the point where MRP equals the new wage rate. 
D)  The wage rate will increase and firms will increase employment up until the point where MRP equals the new wage rate.

Question 20

Suppose the supply of labor schedule decreases in a perfectly competitive labor market while the market demand schedule remains unchanged. A profit-maximizing representative firm will

Accepted Answer

A)  hire more workers. 
B)  hire less workers. 
C)  hire the same number of workers. 
D)  substitute capital for labor.

Exam 10: Input Demand: the Labor and Land Markets

If Tie-Dyed T-Shirts is currently employing labor so that the wage is greater than the marginal revenue product of labor, it must also be true that

The demand for ________ is a ʺderived demand.ʺ

Related to the Economics in Practice on page 221: Because land is demand determined, an acre of land in downtown Harlingen, Texas ________ an acre of land in downtown Chicago, Illinois.

The law of diminishing marginal returns explains why a marginal revenue product schedule

Bonita's Braidworks hires workers to braid hair. The store sells the service for $25 per customer. The marginal revenue product of this storeʹs fifth worker is $50. The marginal product of the fifth worker is

Rent depends on what the potential users of the land are willing to pay for it.

Liu's Potato Chips is a perfectly competitive firm currently employing 30 workers. The marginal revenue product of the 30th worker is $7.00 per hour. The wage rate is $8.00 per hour. To increase profits, this firm should

Tony's Lawn Service uses only one variable input, fertilizer. The firm's demand curve for fertilizer in the short run is the input's

Shifts in factor demand result from changes in

The marginal revenue product of labor is

The supply of land is perfectly elastic.

Which of the following is related to the additional revenues business owners expect to enjoy as a result of hiring the employee?

In general, the production and use of capital the productivity of labor and normally wages.

Related to the Economics in Practice on page 221: Because land is demand determined, an acre of land in downtown San Francisco, California ________ an acre of land in downtown Knoxville, Tennessee.

Firms will hire additional workers only as long as the value of their product is less than the relevant market wage.

If the supply of labor increases, which of the following events will occur?

Suppose the supply of labor schedule decreases in a perfectly competitive labor market while the market demand schedule remains unchanged. A profit-maximizing representative firm will