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Homework answers / question archive / Chapter 10—Factor Markets: With Emphasis on the Labor Market MULTIPLE CHOICE 1)A firm that is a price taker in a factor market faces a(n) __________ supply curve of factors

Chapter 10—Factor Markets: With Emphasis on the Labor Market MULTIPLE CHOICE 1)A firm that is a price taker in a factor market faces a(n) __________ supply curve of factors

Marketing

Chapter 10—Factor Markets: With Emphasis on the Labor Market

MULTIPLE CHOICE

1)A firm that is a price taker in a factor market faces a(n) __________ supply curve of factors.

a.

upward-sloping

b.

horizontal

c.

downward-sloping

d.

vertical

 

 

          

 

     2.   The demand for factors (which arises from the demand for the products that the factors help produce) is called a(n) __________ demand.

a.

derived

b.

indirect

c.

secondary

d.

expressed

 

 

 

 

     3.   The term "derived demand" refers to the idea that a change in the

a.

demand for one good, say, tennis racquets, will affect the demand for related goods, say, tennis balls.

b.

demand for a good is affected by the supply of that good.

c.

demand for a good will affect the demand for the factors used to produce that good.

d.

supply of a factor will affect the demand for that factor.

 

 

          

 

     4.   Marginal revenue product (MRP) is the

a.

additional output generated by employing an additional factor unit.

b.

additional profit generated by employing an additional factor unit.

c.

additional revenue generated by employing an additional factor unit minus the additional cost.

d.

additional revenue generated by employing an additional factor unit.

e.

total revenue from the sale of a product divided by the total output of the product.

 

 

          

 

     5.   Marginal revenue product is equal to marginal revenue multiplied by

a.

average fixed cost.

b.

marginal physical cost.

c.

marginal physical revenue.

d.

average total cost.

e.

none of the above

 

 

 

 

     6.   Marginal revenue product is equal to marginal revenue multiplied by

a.

average physical product.

b.

marginal physical product.

c.

average total cost.

d.

marginal cost.

 

 

          

 

     7.   Marginal factor cost (MFC) is

a.

the additional cost generated by producing an additional unit of output.

b.

the additional revenue generated by employing an additional factor unit.

c.

the additional cost generated by employing an additional factor unit.

d.

total cost from the production of a product divided by the total number of factor units used.

 

 

          

 

     8.   For a factor price taker, the factor supply curve is __________, whereas the market factor supply curve is __________.

a.

horizontal; vertical

b.

vertical; horizontal

c.

upward sloping; horizontal

d.

horizontal; upward sloping

e.

upward sloping; upward sloping

 

 

          

 

Exhibit 10-1

 

(1)

(2)

(3)

(4)

Units of Factor X

Quantity of Output

Product Price

Marginal Revenue Product

0

10

$5

 

1

19

$5

A

2

27

$5

B

3

34

$5

C

4

39

$5

D

 

 

     9.   Refer to Exhibit 11-l. What goes in blank A?

a.

$95

b.

$50

c.

$45

d.

$35

 

 

                                

 

   10.   Refer to Exhibit 11-l. What goes in blank B?

a.

$135

b.

$20

c.

$35

d.

$40

 

 

                                

 

   11.   Refer to Exhibit 10-1. What goes in blank C?

a.

$170.00

b.

$40.00

c.

$35.00

d.

$11.67

 

 

                                

 

   12.   Refer to Exhibit 10-1. What goes in blank D?

a.

$195

b.

$25

c.

$30

d.

$40

 

 

                                

 

   13.   Refer to Exhibit 10-1. The data show that marginal revenue is __________ price, thus we are dealing with a(n) __________ competitive firm.

a.

greater than; perfectly

b.

equal to; imperfectly

c.

equal to; perfectly

d.

less than; perfectly

 

 

          

 

   14.   One way to calculate marginal revenue product is

a.

MR x MPP.

b.

MPP/MR.

c.

MR + MPP.

d.

MPP - MR.

e.

none of the above

 

 

 

 

   15.   The marginal factor cost (MFC) curve for a factor price taker is

a.

vertical.

b.

horizontal.

c.

downward sloping.

d.

upward sloping.

 

 

          

 

   16.   The addition to total cost that results from employing one additional unit of a resource is called

a.

average factor cost.

b.

marginal factor cost.

c.

average total cost.

d.

marginal cost.

 

 

          

 

   17.   A firm's factor demand curve is its

a.

average physical product curve.

b.

marginal physical product curve.

c.

average revenue product curve.

d.

marginal revenue product curve.

 

 

          

 

   18.   Suppose a factor price taker purchases one unit of factor X for $10. At what price would it purchase the second unit, and what would marginal factor cost (MFC) equal?

a.

It would purchase the second unit for $10, and MFC equals $10.

b.

There is not enough information to know what it would purchase the second unit for, and thus we do not know what MFC equals.

c.

It would purchase the second unit for $10, but there is not enough information to know what MFC equals.

d.

There is not enough information to know what it would purchase the second unit for, but MFC equals $10.

 

 

 

 

   19.   Why does the marginal revenue product (MRP) curve slope downward for a perfectly competitive firm?

a.

Because MRP = MR x MPP.  After some point, as more of a factor is employed, the lower its MPP is; thus MRP declines.

b.

Because MRP = MFC x MPP. After some point, as more of a factor is employed, the lower its MFC is; thus MRP declines.

c.

Because MRP = MR x MPP. After some point, MR declines for a product price taker; thus, MRP declines.

d.

Because MRP = MFC x MR. After some point, MFC and MR decline; thus, MRP declines.

 

 

 

 

   20.   A firm will maximize its profits by hiring factors up to the point at which

a.

MR = MC, if the firm is a monopolist, monopolistic competitor, or oligopolist.

b.

P = MC, if the firm is a perfect competitor.

c.

MRP = MFC.

d.

VMP = MFC, if the firm is a price searcher (monopolist, etc.).

e.

a and b

 

 

          

 

   21.   A firm that is perfectly competitive will continue to hire factor units as long as

a.

MRP < MFC.

b.

MRP > MFC.

c.

VMP < MFC.

d.

MC > MR.

 

 

          

 

   22.   If for a firm MRP > MFC, then the firm

a.

is maximizing profits and should continue producing its current output.

b.

is minimizing factor costs and therefore is maximizing profits.

c.

should produce more output by increasing the quantity of factors employed.

d.

should produce less output by decreasing the quantity of factors employed.

 

 

          

 

   23.   The firm's factor demand curve is the

a.

MRP curve if the firm is a price taker (perfectly competitive firm).

b.

MFC curve if the firm is a price taker (perfectly competitive firm).

c.

VMP curve if the firm is a price searcher (monopolist, monopolistic competitor, oligopolist).

d.

MFC curve if the firm is a price searcher (monopolist, monopolistic competitor, oligopolist).

 

 

 

 

   24.   The firm's factor demand curve is the

a.

MRP curve if the firm is a price taker (perfectly competitive firm).

b.

MRP curve if the firm is a price searcher (monopolist, monopolistic competitor, oligopolist).

c.

VMP curve if the firm is a price taker (perfectly competitive firm).

d.

VMP curve if the firm is a price searcher (monopolist, monopolistic competitor, oligopolist).

e.

a, b, and c

 

 

 

 

   25.   Value marginal product is

a.

a measure of additional revenue minus additional cost as a result of additional output.

b.

the price of the product multiplied by the additional output resulting from an additional factor unit employed.

c.

the marginal revenue of the product divided by the additional output resulting from an additional factor unit employed.

d.

the value of an additional unit of product as measured in terms of additional factor cost.

e.

the total value of the total output of a firm divided by the total quantity of output.

 

 

          

 

   26.   Value marginal product equals

a.

P x MPP.

b.

P/MPP.

c.

P x MFC.

d.

b and c

e.

none of the above

 

 

 

 

   27.   For a perfectly competitive firm,

a.

VMP > MRP.

b.

VMP < MRP.

c.

VMP = MRP.

d.

There is not enough information to answer the question.

 

 

          

 

   28.   A measure of the value that one unit of a factor adds to the firm's output is value __________ product.

a.

average

b.

marginal

c.

variable

d.

fixed

 

 

          

 

   29.   Which of the following will cause a firm's factor demand curve to shift to the left?

a.

a decrease in factor costs

b.

an increase in factor costs

c.

a decrease in marginal physical product

d.

an increase in marginal physical product

 

 

          

 

   30.   If a firm is a factor price taker in the labor market,

a.

it must pay higher wages in order to hire additional workers.

b.

it can hire all the workers it wants to at the going wage rate.

c.

it must hire all workers who apply for a job.

d.

it will continue to hire workers as long as MFC > MRP.

 

 

          

 

   31.   For a perfectly competitive firm, a decrease in the price of the product it sells will shift

a.

the demand curve of its product to the left.

b.

the demand curve of its product to the right.

c.

its MRP curve to the left.

d.

its MRP curve to the right.

 

 

          

 

Exhibit 10-2

 

 

 

 

   32.   Refer to Exhibit 10-2. What factor quantity does the firm buy and employ?

a.

Q1

b.

Q2

c.

Q1 + Q2

d.

Q3

e.

Q3 - Q1

 

 

          

 

   33.   Refer to Exhibit 10-2. What type of firm are we dealing with?

a.

definitely a product price searcher (monopolist, oligopolist, etc.)

b.

definitely a product price taker (perfectly competitive firm)

c.

definitely a factor price taker

d.

definitely a factor price searcher

 

 

          

 

   34.   For a product price searcher (such as a monopolist),

a.

P > MR, therefore VMP < MRP.

b.

P = MR, therefore VMP = MRP.

c.

P > MR, therefore VMP > MRP.

d.

P < MR, therefore VMP < MRP.

 

 

          

 

   35.   Firm X is a monopolistic competitive firm and a factor price taker. For this firm at the profit-maximizing factor quantity,

a.

VMP = MRP > MFC = factor price.

b.

VMP>  MRP = MFC > factor price.

c.

VMP > MRP = MFC = factor price.

d.

VMP < MRP = MFC = factor price.

 

 

          

 

   36.   A firm obeys the least-cost rule by equating the ratios of marginal __________ product to the __________ price.

a.

physical; product

b.

physical; factor

c.

reverse; product

d.

reverse; factor

 

 

          

 

   37.   Applying the least-cost rule to two factors, a firm will

a.

maximize profits at the output at which MRP = MFC.

b.

minimize costs when the MPP of factor A equals the MPP of factor B.

c.

minimize costs when the MRP of factor A equals the MRP of factor B.

d.

minimize costs when the MPP of factor A divided by the price of A equals the MPP of factor B divided by the price of B.

 

 

          

 

   38.   If the MPP of the last unit of labor hired equals 6 and the MPP of the last unit of capital hired equals 8, and the price of labor is $4 per unit and the price of capital is $4 per unit, then the firm

a.

is minimizing its costs with this combination of factors.

b.

is maximizing its profits with this combination of factors.

c.

should hire more labor and less capital in order to minimize its costs.

d.

should hire more capital and less labor in order to minimize its costs.

e.

a and b

 

 

          

 

   39.   For a perfectly competitive firm, when the price of what it sells rises, its MRP of labor curve __________, while its VMP of labor curve __________.

a.

stays where it is; shifts to the right

b.

shifts to the right; shifts equally to the right

c.

shifts to the right; stays where it is

d.

shifts to the left; shifts equally to the left

 

 

          

 

   40.   The market demand curve for labor is

a.

the horizontal summation of the firms' demand curves for labor, derived exactly the same way the product market demand curve is derived from the consumers' demand curves.

b.

the vertical summation of the firms' demand curves for labor.

c.

any one firm's demand curve labor multiplied horizontally by the number of firms in the labor market.

d.

none of the above

 

 

          

 

   41.   Which of the following can bring about an increase in the demand for labor?

a.

an increase in the demand for the product that labor produces

b.

an increase in the marginal physical product of labor

c.

a decrease in the price of labor (a decrease in the wage rate)

d.

a and b

e.

a, b, and c

 

 

          

 

   42.   Elasticity of demand for labor measures the percentage change in quantity demanded of labor that is brought about by a percentage change in the

a.

demand for the product produced by labor.

b.

price of the product.

c.

quantity supplied of labor.

d.

wage rate.

e.

price of substitute factors.

 

 

          

 

   43.   The wage rate increases 20 percent, and the quantity demanded of labor falls by 50 percent. The absolute value of the elasticity of demand for labor is

a.

0.30.

b.

3.00.

c.

0.40.

d.

2.50.

e.

none of the above

 

 

          

 

   44.   The lower the elasticity of demand for a product,

a.

the higher the ratio of labor costs to total costs.

b.

the lower the ratio of labor costs to total costs.

c.

the lower the elasticity of demand for the labor that produces the product.

d.

the higher the elasticity of demand for the labor that produces the product.

e.

none of the above

 

 

          

 

   45.   Which of the following statements is true?

a.

The higher the labor cost-total cost ratio, the lower the elasticity of demand for labor.

b.

The lower the labor cost-total cost ratio, the higher the elasticity of demand for labor.

c.

The more substitutes for labor, the higher the elasticity of demand for labor.

d.

The fewer substitutes for labor, the higher the elasticity of demand for labor.

e.

b and c

 

 

          

 

   46.   If the wage rate increases from $8 to $9 and, as a result, the quantity demanded of labor decreases from 5,000 workers to 4,500 workers, then the absolute value of the elasticity of demand for labor is

a.

0.895.

b.

0.682.

c.

1.791.

d.

1.265.

e.

1.117.

 

 

          

 

   47.   Firm A has a higher labor cost-total cost ratio than Firm B. If both firms employ the same type of labor, and the wage rate rises $1, then Firm A's product price will most likely ____________ than Firm B's product price.

a.

rise by more

b.

fall by more

c.

fall by less

d.

rise by less

 

 

 

 

   48.   If the demand for a product that labor produces is highly elastic, a small percentage increase in price will __________ quantity demanded of the product by a relatively __________ percentage, which, in turn, will __________ the demand for the labor that produces the product.

a.

increase; small; slightly reduce

b.

decrease; small; greatly increase

c.

decrease; large; greatly increase

d.

decrease; large; greatly reduce

e.

increase; large; greatly reduce

 

 

          

 

   49.   The market supply curve of labor

a.

slopes downward, indicating that as the wage rate falls, the quantity supplied of labor rises.

b.

slopes upward, indicating that as the wage rate rises, the quantity supplied of labor rises.

c.

is vertical, indicating that the quantity supplied of labor is independent of the wage rate.

d.

slopes upward, indicating that as the wage rate falls, the quantity supplied of labor rises.

 

 

          

 

   50.   The person who chooses to work at a job that pays $40,000 a year instead of at a job that pays $100,000 a year is probably receiving

a.

more nonpecuniary benefits in the $100,000 job than in the $40,000 job.

b.

more nonpecuniary benefits in the $40,000 job than in the $100,000 job.

c.

the same nonpecuniary benefits in the $40,000 job as in the $100,000 job.

d.

There is not enough information to answer this question.

 

 

          

 

   51.   Suppose there are two labor markets, A and B, and labor is homogeneous between markets. The wage rate in labor market A falls relative to the wage rate in labor market B. What happens in labor market B?

a.

The supply curve of labor shifts leftward.

b.

The supply curve of labor shifts rightward.

c.

The demand curve for labor shifts leftward.

d.

b and c

e.

none of the above

 

 

          

 

   52.   A decrease in the wage rate

a.

shifts the supply curve of labor rightward.

b.

increases the quantity supplied of labor.

c.

shifts the supply curve of labor leftward.

d.

decreases the quantity supplied of labor.

 

 

          

 

   53.   Which of the following is a reason why wage rates differ?

a.

In the short run, demand conditions are not the same in all labor markets.

b.

Some jobs have special nonpecuniary aspects.

c.

Labor is not homogeneous.

d.

b and c

e.

a, b, and c

 

 

 

 

   54.   Suppose a sailboat factory and a fishing boat factory exist in the same town. Employees at both factories have the same skills and are initially paid the same wage rate. If the sailboat manufacturer increases the hourly wage paid to his employees, then the

a.

demand for sailboats will increase, and the supply will decrease.

b.

supply of sailboats will decrease.

c.

supply of labor at the fishing boat factory will increase.

d.

a and c

e.

none of the above

 

 

 

 

   55.   If, at a particular wage rate in a competitive market, the quantity supplied of labor exceeds the quantity demanded of labor, then

a.

the supply curve will shift to the left, the demand curve will shift to the right, and the surplus of labor will be eliminated.

b.

since wages are so high, the quantity supplied of workers will increase further, and the quantity demanded will decrease further.

c.

some workers will begin to accept lower wages and, as a result, employers will begin to hire more workers.

d.

the supply curve will shift to the right, the demand curve will shift to the left, and the shortage of labor will be eliminated.

 

 

          

 

   56.   If, at a particular wage rate in a competitive market, the quantity demanded of labor exceeds the quantity supplied of labor, then

a.

the supply curve will shift to the left, the demand curve will shift to the right, and the surplus of labor will be eliminated.

b.

since wages are so low, the quantity supplied of workers will decrease further, and the quantity demanded will increase further.

c.

some workers will begin to demand higher wages, as a result, employers will begin to hire more workers.

d.

the supply curve will shift to the right, the demand curve will shift to the left, and the shortage of labor will be eliminated.

e.

none of the above

 

 

 

 

   57.   Which of the following conditions is not necessary for wage rates to be identical in every labor market in both the short run and the long run?

a.

Demand for labor is identical in each market.

b.

Nonpecuniary factors in each job are the same.

c.

All labor is homogeneous.

d.

All labor has zero costs of mobility.

e.

All of the above are necessary conditions.

 

 

 

 

   58.   The nonmoney benefits a person may receive in a job are sometimes referred to by economists as

a.

nonpayment benefits.

b.

pecuniary benefits.

c.

nonpecuniary benefits.

d.

internal payments.

 

 

          

 

   59.   Assume the following conditions hold: (1) the demand for every type of labor is the same, (2) there are no special nonpecuniary aspects to any job, (3) all labor is ultimately homogeneous and can costlessly be trained for different types of employment, (4) all labor is mobile at zero cost. Given these conditions,

a.

wage rates will be the same in most labor markets.

b.

the demand for labor will be less in some labor markets than in others.

c.

wage rates will be the same in all labor markets.

d.

wage rates will be the same in very few labor markets.

 

 

          

 

   60.   Which of the following can cause an increase in real wages?

a.

a technological advance that increases the quality of the capital goods used by labor.

b.

higher demand for labor.

c.

an increase in the price level.

d.

a and b

e.

all of the above

 

 

          

 

   61.   Suppose that all the necessary conditions exist for the realization of equal wage rates in every labor market, but that currently the wage rate in market X is higher than the wage rate in market Y. We expect that eventually the wage rate

a.

in market X will increase more.

b.

in market Y will decrease.

c.

in market X will decrease and the wage rate in market Y will increase.

d.

will not change in either market, because something out of the ordinary must have caused the wage rates in the two markets not to be equal.

e.

a and b

 

 

          

 

   62.   Which of the following assumptions is not likely to be met in the real world?

a.

Demand for labor is identical in every labor market.

b.

Nonpecuniary factors in each job are the same.

c.

All labor is homogeneous.

d.

All labor has zero costs of mobility.

e.

all of the above

 

 

 

 

   63.   Suppose it has just been discovered that working for long periods of time at a computer terminal causes eye strain, poor posture, and stress. We would expect, ceteris paribus, that the supply curve of computer programmers would shift __________ and the wage rate paid to programmers would __________.

a.

rightward; decrease

b.

rightward; increase

c.

leftward; decrease

d.

leftward; increase

 

 

          

 

   64.   Which of the following statements is true?

a.

Employers are not concerned with determining a potential employee's productivity because they know that with experience the employee's output will increase.

b.

Employers are not concerned with determining a potential employee's productivity because they realize that they cannot accurately determine it beforehand.

c.

Employers are not concerned with determining a potential employee's productivity because they know that they can train the employee after he's hired.

d.

Employers are concerned with determining a potential employee's productivity due to the high costs of training new employees.

e.

a, b, and c

 

 

          

 

   65.   For a factor price taker, the marginal factor cost curve

a.

and the factor supply curve both slope upward, but are not identical.

b.

and the factor supply curve are identical and horizontal.

c.

is horizontal, but the factor supply curve slopes upward.

d.

slopes upward, but the factor supply curve is horizontal.

e.

and the factor supply curve are identical and slope upward.

 

 

          

 

   66.   The additional revenue generated by a firm by hiring one more unit of a factor of production is the

a.

MFC.

b.

MC.

c.

MR.

d.

MRP.

e.

MPP.

 

 

          

 

   67.   The least-cost rule requires that, for every factor, the ratio of the

a.

marginal physical product to factor price must be equal.

b.

marginal revenue product to factor price must be equal.

c.

marginal revenue product to output must be equal.

d.

marginal cost to factor price must be equal.

e.

b and c

 

 

 

 

Exhibit 10-3

 

 

 

 

   68.   Refer to Exhibit 10-3. The firm must be a

a.

price taker in the product market.

b.

price searcher in the product market.

c.

price taker in the factor market.

d.

price searcher in the factor market.

e.

a and c

 

 

          

 

   69.   Refer to Exhibit 10-3. The marginal factor cost (MFC) of the fourth unit of labor is

a.

greater than $10 if the firm expects to hire the fourth worker.

b.

the same as the MFC of the first unit.

c.

less than the wage rate.

d.

equal to the wage rate.

e.

b and d

 

 

 

 

Exhibit 10-4

 

 

 

 

   70.   Refer to Exhibit 10-4. The marginal factor cost of labor

a.

is $14.

b.

is $7.

c.

is $3.

d.

is $10.

e.

depends on the amount of labor employed.

 

 

          

 

   71.   Refer to Exhibit 10-4. In evaluating the marginal cost and revenues of hiring additional units of labor, the firm will not hire

a.

the second worker.

b.

the fourth worker.

c.

labor up to the point where MRP equals the market price of the input.

d.

labor up to the point where MRP = MFC.

e.

both c and d

 

 

          

 

   72.   The demand curve for a factor of production is the

a.

marginal revenue product curve.

b.

marginal revenue curve.

c.

marginal factor cost curve.

d.

marginal cost curve.

e.

b and c

 

 

 

 

   73.   A factor price taker faces

a.

a perfectly elastic demand curve for the product it sells.

b.

a downward-sloping demand curve for the product it sells.

c.

a perfectly elastic supply curve of factors.

d.

an upward-sloping supply curve of factors.

e.

a perfectly inelastic supply curve of factors.

 

 

          

 

   74.   A price searcher (monopolist, monopolistic competitor, etc.) definitely faces

a.

a perfectly elastic demand curve for the product it sells.

b.

a downward-sloping demand curve for the product it sells.

c.

a perfectly elastic supply curve of factors.

d.

an upward-sloping supply curve of factors.

e.

a perfectly inelastic demand curve for the product it sells.

 

 

          

 

   75.   A factor price taker is a firm that

a.

can sell as many units of its good as it wants without affecting price.

b.

sells fewer units of its good at higher prices than lower prices.

c.

can buy all of a factor it wants at the equilibrium price.

d.

drives up factor price if it buys an additional factor unit.

e.

none of the above

 

 

          

 

   76.   Marginal revenue product (MRP) is

a.

equal to marginal revenue multiplied by marginal physical product.

b.

the additional revenue generated by employing an additional factor unit.

c.

the additional output generated by employing an additional factor unit.

d.

a and b

e.

a and c

 

 

          

 

   77.   Marginal factor cost (MFC) is

a.

the additional cost incurred by employing an additional factor unit.

b.

the additional output generated by employing an additional factor unit.

c.

equal to factor price for a factor price taker.

d.

a and c

e.

b and c

 

 

          

 

   78.   The value of marginal product (VMP) is

a.

equal to the product price multiplied by the marginal physical product of the factor.

b.

equal to marginal revenue product for a product price taker.

c.

the firm's factor demand curve if the firm is a product price taker.

d.

a measure of the value that each factor unit adds to the firm's product.

e.

all of the above

 

 

 

 

   79.   A perfectly competitive firm will continue to hire more factor units as long as

a.

MRP > MFC.

b.

VMP > MFC.

c.

MRP > VMP.

d.

VMP = MFC.

e.

a and b

 

 

 

 

   80.   A perfectly competitive firm will maximize its profits by hiring factors up to the point at which

a.

MRP > MFC.

b.

VMP > MFC.

c.

MRP = MFC.

d.

VMP = MFC.

e.

c and d

 

 

 

 

   81.   If a perfectly competitive firm is a factor price taker, at the profit- maximizing factor quantity

a.

VMP = MRP.

b.

MRP = MFC.

c.

MFC = factor price.

d.

both a and b

e.

all of the above

 

 

 

 

   82.   A price searcher (monopolist, oligopolist) will hire more factor units as long as

a.

MRP > MFC.

b.

MRP > VMP.

c.

MRP = MFC.

d.

VMP = MFC.

e.

c and d

 

 

 

 

   83.   A price searcher (monopolist, oligopolist, etc.) will maximize its profits by hiring factors up to the point at which

a.

MRP > MFC.

b.

VMP > MFC.

c.

MRP = MFC.

d.

VMP = MFC.

e.

c and d

 

 

          

 

   84.   If a monopolist is a factor price taker, at the profit-maximizing factor quantity

a.

VMP > MRP.

b.

MRP = MFC.

c.

MFC = factor price.

d.

b and c

e.

all of the above

 

 

 

 

   85.   To minimize cost, a firm hires two factors X and Y until

a.

MPPX/PX = MPPY/PY.

b.

MPPX = MPPY.

c.

MPPX x PX = MPPY x PY.

d.

MRPX/PX = MRPY/PY.

e.

MRPX x PX = MRPY x PY.

 

 

 

 

   86.   If MPPX/PX > MPPY/PY, the firm should buy

a.

more of factor X and less of factor Y.

b.

less of factor X and more of factor Y.

c.

more of factor Y and the same amount of factor X.

d.

less of factor X and factor Y.

e.

more of factor X and factor Y.

 

 

 

 

   87.   If MPPX/PX < MPPY/PY, the firm should buy

a.

more of factor X and less of factor Y.

b.

less of factor X and more of factor Y.

c.

more of factor Y and the same amount of factor X.

d.

less of factor X and factor Y.

e.

more of factor X and factor Y.

 

 

                                

 

   88.   The factor demand curve shifts leftward as a result of

a.

an increase in the price of the product the factor helps to produce.

b.

an increase in the marginal physical product of the factor.

c.

a decrease in the price of the product the factor helps to produce.

d.

a and b

e.

b and c

 

 

          

 

   89.   The elasticity of demand for a factor is lower,

a.

the higher the elasticity of demand for the product the factor helps to produce.

b.

the higher the factor cost-total cost ratio.

c.

the fewer substitutes for the factor.

d.

a and c

e.

all of the above

 

 

          

 

Exhibit 10-5

 

Units of

Labor

Quantity of Output

Marginal Revenue

0

0

10

1

9

10

2

15

10

3

20

10

4

24

10

5

27

10

 

 

   90.   Refer to Exhibit 10-5. The data illustrate that the firm in question is a

a.

price searcher (monopolist, oligopolist, etc.).

b.

price taker (perfectly competitive firm).

c.

factor price searcher.

d.

factor price taker.

 

 

          

 

   91.   Refer to Exhibit 10-5. Marginal physical product of the fourth unit of labor

a.

equals 5.

b.

equals 4.

c.

equals 24.

d.

equals 40.

e.

cannot be determined.

 

 

                                

 

   92.   Refer to Exhibit 10-5. The value of marginal product of the third unit of labor equals

a.

$5.

b.

$25.

c.

$30.

d.

$50.

e.

$105.

 

 

                                

 

   93.   Refer to Exhibit 10-5. The marginal revenue product of the second unit of labor is

a.

$60.

b.

$150.

c.

$7.

d.

$5.

 

 

          

 

   94.   Refer to Exhibit 10-5. The marginal revenue product of the first unit of labor is

a.

$90.

b.

$60.

c.

$40.

d.

$9.

 

 

          

 

   95.   Refer to Exhibit 10-5. The marginal revenue product of the fifth unit of labor is

a.

$270.

b.

$3.

c.

$30.

d.

$40.

 

 

                                

 

   96.   Refer to Exhibit 10-5. Assume that the firm is a factor price taker and that the price of a unit of labor equals $30. The firm will hire __________ of labor.

a.

one unit

b.

two units

c.

three units

d.

four units

e.

five units

 

 

          

 

   97.   Refer to Exhibit 10-5. Assume the firm is a factor price taker and that the price of a unit of labor equals $50. The firm will hire __________ of labor.

a.

one unit

b.

two units

c.

three units

d.

four units

e.

five units

 

 

                                

 

   98.   Refer to Exhibit 10-5. Assume the firm is a factor price taker and that the price of a unit of labor equals $58. The firm will hire __________ of labor.

a.

one unit

b.

two units

c.

three units

d.

four units

e.

five units

 

 

                                

 

   99.   Refer to Exhibit 10-5. Assume the firm is a factor price taker and that the price of a unit of labor equals $90. The firm will hire __________ of labor.

a.

one unit

b.

two units

c.

three units

d.

four units

e.

five units

 

 

          

 

100.   A market demand curve for labor shows the quantities of labor demanded by

a.

a particular firm in a specific labor market.

b.

all the firms in a specific labor market.

c.

a particular firm in various labor markets.

d.

all the firms in various labor markets.

 

 

          

 

101.   Elasticity of demand for labor is affected by the

a.

price elasticity of demand for the product that labor produces.

b.

availability of substitute (nonlabor) factors.

c.

ratio of labor cost to total cost.

d.

all of the above

 

 

          

 

102.   If all the individuals had the same innate and learned skills and abilities, applied the same degree of effort on the job, and worked with the same amount and quality of other factors of production,

a.

all labor supply curves would be horizontal.

b.

all labor demand curves would be horizontal.

c.

wages in different markets would differ less than they currently do.

d.

the quantity of labor supplied would decrease in all markets.

e.

the demand curve for capital would be upward sloping.

 

 

          

 

103.   An increase in the demand for a good will lead to a

a.

rightward shift of the MRP of labor curve.

b.

leftward shift of the MRP of labor curve.

c.

movement up and along a given MRP of labor curve.

d.

movement down and along a given MRP of labor curve.

 

 

 

 

Exhibit 10-6

 

 

 

 

104.   Refer to Exhibit 10-6. Let AA represent the value marginal product curve of an oligopolist. Which of the following could represent his marginal revenue product curve?

a.

AA

b.

BB

c.

CC

d.

any of the above

 

 

          

 

105.   Refer to Exhibit 10-6. Let AA and MFC represent the value of marginal product curve and the marginal factor cost curve of a monopolist. Which of the following is a possible profit-maximizing factor quantity the monopolist will employ?

a.

QA

b.

QB

c.

QC

d.

none of the above is possible

 

 

          

 

Exhibit 10-7

 

 

 

 

106.   Refer to Exhibit 10-7. The exhibit shows two markets in which labor of identical skills is employed. Assume that both markets are in equilibrium with Q1 and Q2 quantities of labor employed at the respective prices of $4 and $6 per unit. If labor is costlessly mobile between the markets, which of the following pairs of shifts of the respective labor supply curves is to be expected?

a.

S1 to S5 and S2 to S6

b.

S1 to S5 and S2 to S4

c.

S1 to S3 and S2 to S6

d.

S1 to S3 and S2 to S4

 

 

          

 

107.   Refer to Exhibit 10-7. The exhibit shows two markets in which labor of identical skills is employed. Assume that both markets are in equilibrium with Q1 and Q2 quantities of labor employed at the respective prices of $4 and $6 per unit. If this equilibrium persists in the long run, an economist would suspect that

a.

nonpecuniary benefits are higher in market A.

b.

nonpecuniary benefits are higher in market B.

c.

there is discrimination in market A.

d.

there is no cost of moving across markets.

e.

b and c

 

 

 

 

108.   A profit maximizing firm that is a price taker in both product and factor markets will hire a factor up to the point at which

a.

the last unit of the factor hired adds as much to costs as it does to revenues.

b.

the value of marginal product equals the wage rate.

c.

the marginal revenue product equals the wage rate.

d.

all of the above

e.

a and b

 

 

          

 

109.   If the market supply of labor increases, the total wage income will increase if the

a.

demand for labor is elastic.

b.

demand for labor is inelastic.

c.

supply of labor is elastic.

d.

supply of labor is inelastic.

 

 

 

 

110.   "Screening" is the process by which

a.

wages tend to be equalized as workers move from one labor market to another.

b.

firms calculate the point of MRP = MFC.

c.

firms try to increase the probability of hiring good employees.

d.

discrimination is claimed to be an "information problem."

 

 

          

 

111.   Promoting from within should __________ be regarded as an act of discrimination because the information costs of inside versus outside employees are __________.

a.

always; the same

b.

always; higher for the insiders

c.

sometimes not; the same

d.

sometimes not; higher for the outsiders

 

 

          

 

112.   The percentage change in the quantity demanded of labor divided by the percentage change in the wage rate is called the

a.

marginal revenue product of labor.

b.

elasticity of demand for labor.

c.

elasticity of supply of labor.

d.

marginal factor cost of labor.

 

 

          

 

113.   Which is the following is most likely to be a derived demand?

a.

the demand for new clothes to wear to a party

b.

the demand for a house to live in

c.

the demand for oranges that will be used to produce and sell orange juice

d.

the demand for oranges to eat

 

 

          

 

114.   Marginal revenue product is

a.

the additional cost of employing a factor.

b.

the additional revenue generated by employing an additional factor unit.

c.

marginal revenue multiplied by price of the factor unit.

d.

price of the good that is sold multiplied by unit cost.

e.

none of the above

 

 

          

 

115.   When a firm employs 1 unit of factor X it produces 25 units of output and when it employs 2 units of factor X it produces 47 units of output. It follows that marginal revenue product is

a.

22.00.

b.

25.00.

c.

0.53.

d.

1.88.

e.

There is not enough information to answer the question.

 

 

 

 

116.   For a perfectly competitive firm,

a.

MRP = VMP.

b.

P > MR.

c.

MRP > VMP.

d.

VMP > MRP.

e.

b and d

 

 

 

 

117.   When a perfectly competitive firm (that sells its good at $5 per unit) hires 1 unit of factor X it produces 24 units of output and when it hires 2 units of factor X it produces 53 units of output. Marginal revenue product is equal to __________ for the second unit of factor X.

a.

$95

b.

$265

c.

$120

d.

$145

e.

none of the above

 

 

          

 

118.   __________ is often referred to as "marginal physical product in dollars."

a.

Product price

b.

Value marginal product

c.

Marginal factor cost

d.

The factor demand curve

e.

none of the above

 

 

          

 

119.   Which of the following is false?

a.

For a perfectly competitive firm, the factor demand curve is the same as the MRP curve and the VMP curve.

b.

For a price searcher, its VMP curve lies above its MRP curve.

c.

For a price searcher, its VMP curve is its factor demand curve.

d.

A firm that faces a horizontal (perfectly elastic) supply curve of factors is called a factor price taker.

 

 

          

 

120.   For a firm, marginal factor cost is the same dollar amount no matter what quantity of a factor it purchases. This firm is a

a.

product price taker.

b.

product price searcher.

c.

factor price taker.

d.

factor price searcher.

e.

none of the above

 

 

          

 

121.   For a firm, marginal factor cost is the same dollar amount no matter what quantity of a factor it purchases. For this firm,

a.

VMP = MRP.

b.

VMP > MRP.

c.

MRP > VMP.

d.

MPP necessarily declines beginning with the first factor unit.

e.

none of the above

 

 

 

 

122.   The optimal (or best) quantity of a factor for a firm to purchase is that quantity at which

a.

VMP = MRP.

b.

MFC = ARC.

c.

MRP = MFC.

d.

MRP = Price

e.

none of the above

 

 

          

 

123.   If there are two factors used in producing a good, the least-cost rule specifies that costs have been minimized when

a.

the MPP of the first factor divided by its price is equal to the MPP of the second factor divided by its price.

b.

the MPP of the first factor multiplied by its price is equal to the MPP of the second factor minus its price.

c.

the MPP of the first factor divided by the price of the second factor is equal to the MPP of the second factor divided by the price of the first factor.

d.

the MPP of the second factor minus the MPP of the first factor is equal to the price of the second factor minus the price of the first factor.

e.

none of the above

 

 

 

 

124.   The MPP of labor divided by its (labor's) price is greater than the MPP of capital divided by its (capital's) price. Costs can be minimized by

a.

buying more capital and less labor.

b.

buying more labor and less capital.

c.

maintaining the current MPP/P ratios.

d.

buying twice as much labor as capital.

e.

none of the above

 

 

          

 

125.   As a firm buys more capital and less labor, the marginal physical product of capital __________ and the marginal physical product of labor __________, assuming the law of diminishing marginal returns has set in for each factor.

a.

decreases; increases

b.

increases; increases

c.

decreases; decreases

d.

increases; remains constant

e.

remains constant; decreases

 

 

 

 

126.   When deciding whether a person is "worth" a certain salary, economists will want to compare a person's __________ with his or her wage or salary.

a.

marginal physical product

b.

marginal revenue product

c.

marginal factor cost

d.

derived demand

e.

none of the above

 

 

          

 

127.   The MPP/Price ratio for labor is 25/$5 and the MPP/Price ratio for capital is 30/$6. A firm that employs both labor and capital will likely

a.

buy more labor and less capital because labor is cheaper.

b.

buy more capital and less labor because capital is more productive.

c.

maintain the current combination of capital and labor.

d.

buy more capital and less labor because capital is cheaper.

e.

There is not enough information to answer the question.

 

 

          

 

128.   Factor X is used in the production of good Y. Which of the following will increase the demand for factor X?

a.

a decrease in the demand for Y

b.

a rise in the MPP of factor X

c.

a fall in the price of good Y

d.

a fall in the cost of employing factor X

e.

a and b

 

 

          

 

129.   Which of the following is true?

a.

The market demand for labor is the horizontal "addition" of the firms' demand curves for labor.

b.

The elasticity of demand for labor is the percentage change in quantity demanded of labor divided by the percentage change in wage rate.

c.

The factor demand curve will shift to the right if the price rises for the good the factor goes to produce.

d.

b and c

e.

a, b, and c

 

 

          

 

130.   The elasticity of demand for labor is 2.16. It follows that if the

a.

wage rate changes by 10 percent, the demand for labor changes by 2.16 percent.

b.

demand for labor changes by 2.16 percent, the wage rate changes by 1.0 percent.

c.

wage rate changes by 10 percent, the quantity demanded of labor changes by 21.6 percent.

d.

wage rate changes by 2.16 percent, the quantity demanded of labor changes by 2.16 percent.

e.

none of the above

 

 

          

 

131.   What is the relationship between the elasticity of demand for a product and the elasticity of demand for labor (that is used in producing the product)?

a.

The higher the price of the product, the higher the elasticity of demand for labor.

b.

The higher the price of the product, the lower the elasticity of demand for labor.

c.

The higher the elasticity of demand for the product, the lower the elasticity of demand for the product.

d.

The lower the elasticity of demand for the product, the lower the elasticity of demand for the product.

e.

There is not enough information to answer the question.

 

 

          

 

132.   Which of the following statements is false?

a.

The higher the labor cost-total cost ratio, the higher the elasticity of demand for labor.

b.

The more substitutes for labor, the higher the elasticity of demand for labor.

c.

The higher the elasticity of demand for the product, the higher the elasticity of demand for the labor that produces the product.

d.

A change in the MFC of a factor leads to a change in the MRP of a factor.

 

 

          

 

133.   Given a 10 percent increase in wages, firm A cuts back on labor more than firm B. It follows that, ceteris paribus,

a.

firm A has a higher labor cost-total cost ratio than firm B.

b.

firm B has a higher labor cost-total cost ratio than firm A.

c.

the elasticity of demand for labor is higher for firm B than firm A.

d.

firm B has higher fixed costs than firm A.

e.

firm A has higher per-unit costs than firm B.

 

 

 

 

134.   Given an 8 percent increase in wages, firm A cuts back on labor more than firm B. It follows that, ceteris paribus,

a.

there are fewer substitutes for labor in firm B than A.

b.

there are fewer substitutes for labor in firm A than B.

c.

sunk costs are greater for firm A than B.

d.

the demand for the product that firm A produces is less elastic than the product that firm B produces.

e.

a and d

 

 

 

 

135.   Given a 3 percent decrease in wages, firm A hires more labor than firm B. It follows that, ceteris paribus,

a.

the elasticity of demand for the product that firm A produces is lower than the elasticity of demand for the product that firm B produces.

b.

firm A has a lower labor cost-total cost ratio than firm B.

c.

firm A has more substitutes for labor than firm B.

d.

firm A has higher per-unit costs than firm B.

e.

none of the above

 

 

          

 

136.   As the wage rate rises,

a.

the supply of labor rises.

b.

the quantity demanded of labor rises.

c.

the quantity supplied of labor rises.

d.

the demand for labor falls.

e.

a and d

 

 

          

 

137.   When the owners of a professional sports team pay their athletes very high salaries, it must be true that

a.

the nonpecuniary aspects of the job are very low.

b.

the owners expect the MRP of that athlete to be greater than the amount the player is paid.

c.

the owners expect the MFC of that athlete to be greater than the amount the player is paid.

d.

b and c

e.

all of the above

 

 

          

 

138.   When an economist says that the wage a person receives must cover his or her opportunity costs, the economist is

a.

holding all things equal, except the wage.

b.

holding all things equal, including the wage.

c.

assuming that people are sometimes irrational.

d.

assuming that people are always irrational.

e.

b and c

 

 

 

 

139.   Which of the following can change the supply of labor in, say, labor market A?

a.

a change in the wage rate in labor market A.

b.

a change in the wage rate in, say, labor markets B or C.

c.

a positive change in the overall pleasantness of working in labor market A.

d.

a negative change in the working conditions in labor market A.

e.

b, c, and d

 

 

 

 

140.   Which of the following can change the wage rate in, say, labor market A?

a.

An increase in the price of the product that employees in labor market A produce.

b.

A negative change in the working conditions in labor market A.

c.

A rise in the wage rate in labor market B.

d.

a and c

e.

a, b, and c

 

 

 

 

141.   Which of the following statements is true?

a.

A person who chooses to work at a job that pays $40,000 a year instead of a job that pays $80,000 a year is considered (by economists) to be irrational.

b.

The wage rate paid in one labor market can affect the supply of labor in another labor market.

c.

The wage rate paid in one labor market can affect (albeit indirectly) the wage rate paid in another labor market.

d.

The demand for every type of labor is always the same.

e.

b and c

 

 

 

 

142.   Which of the following statements is false?

a.

There are no special nonpecuniary aspects to any job.

b.

Nonpecuniary aspects of a job refer to the nonmoney aspects of a job.

c.

A change in the wage rate can change the quantity demanded and quantity supplied of labor.

d.

A change in the supply of labor can affect the wage rate.

 

 

 

 

143.   For wage rates to be the same in various labor markets, four conditions must exist: (1) demand for every type of labor must be __________; (2) no special __________ aspects to any job; (3) all labor is ultimately __________ and can __________ be trained for different types of employment; and (4) all labor is mobile at __________.

a.

heterogeneous; money; homogeneous; costlessly; minimum cost

b.

the same; nonpecuniary; homogeneous; costlessly; zero cost

c.

high; training; homogeneous; costlessly; zero cost

d.

high; nonpecuniary; heterogeneous; costlessly; minimum cost

e.

none of the above

 

 

          

 

144.   Part of the cost of committing a crime is the probability of serving a jail sentence __________ the real wage that would be earned if not serving time in jail.

a.

multiplied by

b.

divided by

c.

added to

d.

less

 

 

 

 

145.   Which of the following does not affect wages?

a.

number of persons who can do a particular job

b.

degree of effort employees exert while on the job

c.

own abilities and skills

d.

product price

e.

none of the above; i.e., all of the factors affect wages

 

 

 

 

146.   The marginal productivity theory states that

a.

firms in price searcher product markets pay factors their marginal factor cost.

b.

firms in perfect factor markets pay factors their equilibrium wages.

c.

firms that are more productive, earn higher profits.

d.

firms in perfect product and factor markets pay factors their marginal revenue products.

e.

none of the above

 

 

          

 

147.   Consider two labor markets, A and B. Wages in labor market A rise. This could be due to

a.

decreasing wages in labor market B.

b.

the negative nonpecuniary aspects of work in labor market A rise.

c.

the number of people who can do the work that is done in labor market A increases.

d.

the demand for the product that employees in labor market A produce falls.

e.

a and d

 

 

          

 

148.   Consider two labor markets, C and D. Wages in labor market D fall. This could be due to

a.

the marginal revenue curve in the product market (that employees in labor market D supply with goods) shifts to the left.

b.

increase in the marginal physical product of the employees in labor market D.

c.

increase in the price and marginal revenue of the product that employees in labor market D produce.

d.

b and c

e.

a, b, and c

 

 

 

 

149.   Suppose wages for construction workers are higher in Hawaii than in Florida. This could be because the

a.

moving costs between Florida and Hawaii are so high that construction workers in Florida do not relocate to Hawaii.

b.

product price of what construction workers in Hawaii produce is higher than the product price of what construction workers in Florida produce and the moving costs between Florida and Hawaii are zero.

c.

moving costs between Florida and Hawaii are zero.

d.

marginal physical product of construction workers in Hawaii is higher than the marginal physical product of construction workers in Florida and the moving costs between Florida and Hawaii are zero.

e.

b and d

 

 

 

 

150.   The supply of labor in labor market X is a function of (or depends upon)

a.

wage rates in other labor markets.

b.

the marginal physical product of workers in any labor market.

c.

the price of the product that is produced by workers in labor market X.

d.

the degree of effort exerted by the workers in labor market X.

e.

a and d

 

 

 

 

151.   Which of the following is false?

a.

If a firm is a factor price taker, marginal factor cost is constant and equal to factor price. This means a factor price taker pays a wage equal to its marginal factor cost.

b.

Firms hire the factor quantity at which marginal revenue product equals marginal factor cost.

c.

If a firm is a product price taker, marginal revenue product is greater than value marginal product.

d.

If a firm is product price taker and a factor price taker, it pays labor a wage equal to its value marginal product.

 

 

          

 

152.   "Screening" is the process used by

a.

employers to increase the probability of choosing good employees based on certain criteria.

b.

tax evaluators to make sure that business firms pay the amount of taxes they owe.

c.

employees to try to get their wages up.

d.

employers to spy on their competitors.

e.

none of the above

 

 

 

 

153.   When a prospective employer asks a graduating senior in college for evidence of his grade point average (GPA), the employer is

a.

discriminating against the graduating senior.

b.

screening the graduating senior.

c.

probably just trying to intimidate the graduating senior.

d.

b and c

 

 

          

 

154.   Which of the following is false?

a.

The value marginal product is a measure of the value that each factor unit adds to the firm's product.

b.

For a monopolist, value marginal product equals marginal revenue product.

c.

A change in the price of the product labor produces or a change in the marginal physical product of labor (reflect in a shift in the MPP curve) will shift the demand curve for labor.

d.

For a perfectly competitive firm, value marginal product equals marginal revenue product.

 

 

          

 

Exhibit 10-8

 

(1)

Quantity of

Factor X

(2)

Quantity of

Output

(3)

Product

Price

(4)

Marginal

Physical Product

(5)

Marginal

Revenue Product

0

10

$12

 

 

1

19

$12

 

C

2

27

$12

A

D

3

34

$12

B

E

4

40

$12

 

F

5

45

$12

 

 

6

49

$12

 

 

 

 

155.   Refer to Exhibit 10-8. The numbers that go in blanks A and B are, respectively,

a.

19 and 20.

b.

8 and 7.

c.

10 and 11.

d.

8 and 9.

e.

none of the above

 

 

          

 

156.   Refer to Exhibit 10-8. The dollar amounts that go in blanks C and D are, respectively,

a.

$108 and $96.

b.

$12 and $12.

c.

$190 and $270.

d.

$90 and $80.

e.

There is not enough information to answer the question.

 

 

 

 

157.   Refer to Exhibit 10-8. The dollar amounts that go in blanks E and F are, respectively,

a.

$340 and $400.

b.

$70 and $60.

c.

$84 and $72.

d.

$60 and $70.

e.

There is not enough information to answer the question.

 

 

          

 

158.   If a firm is a factor price searcher, then it faces

a.

a downward sloping demand curve for its product, and its marginal revenue curve will lie below its demand curve.

b.

a horizontal marginal factor cost curve.

c.

an upward sloping factor supply curve, and its marginal factor cost curve will lie above the factor supply curve.

d.

an upward sloping factor supply curve, and its marginal factor cost curve will coincide with the factor supply curve.

e.

an upward-sloping factor supply curve, and its marginal factor cost curve will lie below the factor supply curve.

 

 

          

 

159.   Which of the following is true for a factor price searcher?

a.

It cannot buy additional units of a factor without increasing the price it pays for the factor.

b.

It can buy additional units of a factor without increasing the price it pays for the factor.

c.

The supply of labor it faces is the industry supply of labor.

d.

a and c

e.

b and c

 

 

          

 

160.   If the firm is a factor price searcher, as more labor is hired the marginal factor cost of labor

a.

decreases.

b.

becomes zero.

c.

remains constant.

d.

increases.

e.

becomes identical to the wage rate.

 

 

          

 

161.   Which of the following is false?

a.

For a factor price searcher, marginal factor cost decreases as it buys additional units of a factor.

b.

For a factor price searcher, the supply curve of the factor it buys is different from the marginal factor cost curve.

c.

The factor price searcher buys that quantity of a factor at which marginal revenue product equals marginal factor cost.

d.

The factor price searcher pays its factors a dollar amount less than its marginal factor cost.

 

 

 

 

TRUE/FALSE

 

     1.   The market demand curve for labor is the horizontal summation of the firms' demand curves (MRP curves) for labor.

 

 

 

     2.   According to the substitution effect, as the wage rate rises the monetary reward from working increases and workers will want to work more.

 

          

 

     3.   The elasticity of demand for labor measures the percentage change in quantity demanded of labor that occurs as a result of a percentage change in the wage rate.

 

          

 

     4.   The higher the labor cost-total cost ratio, the lower the elasticity of demand for labor.

 

 

 

     5.   For a product price taker, VMP equals MR.

 

 

 

     6.   For a factor price taker, the demand for labor curve is horizontal at the going market wage.

 

 

 

     7.   The least-cost rule states that a firm minimizes costs by buying factors in the combination at which the MRP-to-price ratio for each is the same.

 

 

 

     8.   For a given labor market, an increase in the MPP of labor will shift the demand curve for labor rightward.

 

          

 

     9.   What looks like discrimination in the labor markets is always just a problem of the high cost of information.

 

 

 

   10.   In general, more education does not seem to raise one's productivity.

 

 

 

   11.   The average annual earnings for a person with a Master's degree is higher than that of a person who ended their formal education with a bachelor's degree.

 

          

 

   12.   Employers use screening mechanisms, such as GPA, because they lack complete information about job applicants.

 

          

 

   13.   Labor supply is a reflection of the number of persons who can actually do a job.

 

          

 

   14.   When the wage rate offered changes in other labor markets it can bring about a change in the demand for labor in a particular labor market.

 

 

 

   15.   A factor price searcher faces an upward sloping supply of labor curve and its marginal factor cost curve lies below its labor supply curve.

 

 

 

ESSAY

 

     1.   List and describe the four conditions necessary for everyone to receive equal pay in the long run.

 

 

 

 

     2.   Describe how the substitution effect and the income effect influence the slope of an individual's supply curve of labor.

 

 

 

 

     3.   Barry Bonds earned about $18 million in 2004 playing baseball for the San Francisco Giants baseball team. Explain the economic justification for the owners paying such a high salary.

 

 

 

 

     4.   What does the elasticity of demand for labor measure?  List and describe the three determinants of this type of elasticity.

 

 

 

 

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