Question 1

Figure 18-1
On the graph, L represents the quantity of labor and Q represents the quantity of output per week. 
-Refer to Figure 18-1. Suppose the firm sells its output for $25 per unit, and it pays each of its workers $1,000 per week. Also, the firm's non­labor costs are fixed and they amount to $2,000. The firm maximizes profit by hiring

Accepted Answer

A)  2 workers. 
B)  3 workers. 
C)  4 workers. 
D)  5 workers.

Question 2

A firm's demand for labor is derived from its decision to supply a good in another market.

Accepted Answer

A) True 
 B)False

Question 3

The production function is

Accepted Answer

A)  the increase in the amount of output from an additional unit of labor. 
B)  influenced by the productivity of workers. 
C)  the marginal revenue produce minus the wage rate paid to workers. 
D)  All of the above are correct.

Question 4

An increase in population can be expected to

Accepted Answer

A)  increase the marginal product of land. 
B)  decrease the supply of land. 
C)  decrease the rents on land. 
D)  decrease the demand for land.

Question 5

Suppose that a toxic waste spill renders half of the land in New Jersey uninhabitable. Assuming that land and labor are complements in the production function, what would happen to the wages earned by workers and rents earned by landowners?

Accepted Answer

A)  Both wages and rents would increase. 
B)  Both wages and rents would decrease. 
C)  Wages would increase, and rents would decrease. 
D)  Wages would decrease, and rents would increase.

Question 6

In order to study labor markets more easily, we make which of the following assumptions about firms? (i) Firms sell their products in competitive markets.
(ii) Firms buy their inputs in competitive markets.
(iii) Firms maximize profits.
(iv) Firms maximize revenues.

Accepted Answer

A)  (iii) only 
B)  (i) and (iii) only 
C)  (i), (ii), and (iii) only 
D)  (i), (ii), (iii), and (iv)

Question 7

Suppose the wage earned by pear pickers suddenly rises. Which of the following effects would we most likely observe as a result?

Accepted Answer

A)  The supply of apple pickers would decrease and the equilibrium wage of apple pickers would decrease. 
B)  The supply of apple pickers would decrease and the equilibrium wage of apple pickers would increase. 
C)  The demand for apple pickers would increase and the equilibrium wage of apple pickers would decrease. 
D)  The demand for apple pickers would decrease and the equilibrium wage of apple pickers would decrease.

Question 8

Table 18-6
 
-Refer to Table 18-6. What is the value for the cell labeled AA?

Accepted Answer

A)  $600 
B)  $500 
C)  $400 
D)  $300

Question 9

Suppose that the wage paid to workers who detassel corn rises. What happens in the market for workers who weed soybean fields, given that workers who detassel corn can easily work weeding soybean fields?

Accepted Answer

A)  The demand curve for soybean workers increases. 
B)  The demand curve for soybean workers decreases. 
C)  The supply curve for soybean workers increases. 
D)  The supply curve for soybean workers decreases.

Question 10

Scenario 18-7
Suppose the following events occur in the market for university economics professors.
Event 1: A recession in the U.S. economy lowers the opportunity cost of going to graduate school in economics to become a university economics professor.
Event 2: An increasing number of students in U.S. primary and secondary schools increases the number of students entering college, increasing the output price of university economics professors' services.
-Refer to Scenario 18-7. As a result of these two events, holding all else constant, the equilibrium quantity of university economics professors will

Accepted Answer

A)  increase. 
B)  decrease. 
C)  not change. 
D)  It is not possible to determine what will happen to the equilibrium quantity.

Question 11

Figure 18-3 
-Refer to Figure 18-3. What is the marginal product of the second worker?

Accepted Answer

A)  4 units 
B)  6 units 
C)  8 units 
D)  12 units

Question 12

Suppose that a competitive firm hires labor up to the point at which the value of the marginal product equals the wage and that labor is the only input that varies for the firm. If the firm pays a wage of $700 per week and the marginal product of labor equals 35 units per week, then the marginal cost of producing an additional unit of output is

Accepted Answer

A)  $20. 
B)  $35. 
C)  $700. 
D)  We do not have enough information to answer this question.

Question 13

Scenario 18-2
Gertrude Kelp owns three boats that participate in commercial fishing for fresh Pacific salmon off the coast of Alaska. As part of her business she hires a captain and several crew members for each boat. In the market for fresh Pacific salmon, there are thousands of firms like Gertrude's. While Gertrude usually catches a significant number of fish each year, her contribution to the entire harvest of salmon is negligible relative to the size of the market.
-Refer to Scenario 18-2. If the price of fresh Pacific salmon were to increase significantly, it is most likely that Gertrude would

Accepted Answer

A)  reduce her demand for crew members. 
B)  sell some of her boats. 
C)  become a seller in at least one factor market. 
D)  hire more crew members.

Question 14

Table 18-12
The table displays data for a small, competitive, profit-maximizing firm that produces and sells envelopes. The time frame is one week.
 
-Refer to Table 18-12. Suppose the firm sells each box of envelopes that it produces for $6. What is the value of the marginal product of the second worker?

Accepted Answer

A)  $1,440 
B)  $1,212 
C)  $636 
D)  $552

Question 15

What happens to the labor supply curves in both countries when Mexican workers leave Mexico and move to the United States?

Accepted Answer

A)  Labor supply decreases in Mexico and decreases in the United States. 
B)  Labor supply increases in the United States and increases in Mexico. 
C)  Labor supply increases in the United States and decreases in Mexico. 
D)  Labor supply increases in Mexico and decreases in United States.

Question 16

Suppose that an industrial accident at a factory destroys a significant number of high-speed blenders that bartenders use to mix frozen drinks. What will happen in the labor market for bartenders?

Accepted Answer

A)  Both wages and employment will increase. 
B)  Both wages and employment will decrease. 
C)  Wages will increase, and employment will decrease. 
D)  Wages will decrease, and employment will increase.

Question 17

Figure 18-3 
-Refer to Figure 18-3. Suppose that the price of the output is $20. What is the value of the marginal product of the third worker?

Accepted Answer

A)  $2 
B)  $10 
C)  $40 
D)  $280

Question 18

Among the people who are characterized below, who has the highest opportunity cost of leisure?

Accepted Answer

A)  a veterinarian who earns $25 per hour and who goes surfing during her leisure time 
B)  a professional tennis player who earns $50 per hour giving tennis lessons and who watches TV during his leisure time 
C)  a retail clerk who earns $15 per hour and who plays computer games during his leisure time 
D)  a CPA who earns $150 per hour and who golfs during her leisure time

Question 19

When a competitive firm hires labor up to the point at which the value of the marginal product of labor equals the wage, it also produces up to the point at which the price of output equals average variable cost.

Accepted Answer

A) True 
 B)False

Question 20

According to the neoclassical theory of distribution, the wages paid to workers depend on the

Accepted Answer

A)  supply of labor. 
B)  demand for labor. 
C)  marginal productivity of labor. 
D)  All of the above are correct.

Exam 18: The Markets for the Factors of Production