Question 1

The substitution effect of a decrease in the wage will

Accepted Answer

A)  decrease leisure, regardless of whether leisure is a normal or inferior good. 
B)  increase leisure, regardless of whether leisure is a normal or inferior good. 
C)  increase leisure only if leisure is a normal good. 
D)  decrease leisure only if leisure is a normal good. 
A)  decrease leisure, regardless of whether leisure is a normal or inferior good. 
B)  increase leisure, regardless of whether leisure is a normal or inferior good. 
C)  increase leisure only if leisure is a normal good. 
D)  decrease leisure only if leisure is a normal good.

Question 2

Use the following statements to answer this question:
I. Under profit maximization, the quantity of labor used in production is optimal if MR = w/MPL.
II. The expression MR = w/MPL implies that the revenue earned from the last unit of output produced equals the marginal cost of the last unit of output.

Accepted Answer

A)  I and II are true. 
B)  I is true and II is false. 
C)  II is true and I is false. 
D)  I and II are false. 
A)  I and II are true. 
B)  I is true and II is false. 
C)  II is true and I is false. 
D)  I and II are false.

Question 3

Suppose a labor market has perfectly inelastic supply that is composed of union and non-union workers, and both groups of workers initially earn the perfectly competitive wage. What happens to the equilibrium employment level and wage for non-union workers if the union exercises its bargaining power?

Accepted Answer

A)  Both increase. 
B)  Employment increases and wage declines. 
C)  Wage increases and employment declines. 
D)  Both decline. 
A)  Both increase. 
B)  Employment increases and wage declines. 
C)  Wage increases and employment declines. 
D)  Both decline.

Question 4

Based on the example provided by the authors, what is the key factor that explains much of the growing inequality in wages paid to different types of workers in the U.S. since 1980?

Accepted Answer

A)  Changes in the gender composition of the work force 
B)  Changes in the age distribution of the work force 
C)  Differences in computer and data analysis skills 
D)  Changes in the geographic concentration of workers 
A)  Changes in the gender composition of the work force 
B)  Changes in the age distribution of the work force 
C)  Differences in computer and data analysis skills 
D)  Changes in the geographic concentration of workers

Question 5

Which of the following is NOT true about the supply of labor to the firm in a competitive labor market?

Accepted Answer

A)  It is horizontal. 
B)  It is perfectly elastic. 
C)  It is equal to the marginal expenditure curve. 
D)  It is upward sloping. 
A)  It is horizontal. 
B)  It is perfectly elastic. 
C)  It is equal to the marginal expenditure curve. 
D)  It is upward sloping.

Question 6

Scenario 14.4:
John's firm is a competitor in your product market and a monopsonist in the labor market. The current market price of the product that your firm produces is $2. The total product and marginal product of labor are given as:
TP = 100L - 0.125LS1U1P12 S1S1P0MP = 100 - 0.25L
where L is the amount of labor employed. The supply curve for labor and the marginal expenditure curve for labor are given as follows:
L = PS1U1B1LS1U1B0 -5 MES1U1B1LS1U1B0 = 2L + 5
-Refer to Scenario 14.4. Suppose that the price of the product rises to $5, the price of labor

Accepted Answer

A)  will decrease. 
B)  will increase. 
C)  will not change. 
D)  will change in an indeterminate fashion. 
A)  will decrease. 
B)  will increase. 
C)  will not change. 
D)  will change in an indeterminate fashion.

Question 7

Scenario 14.1:
You are the manager of a firm producing green chalk. The marginal product of labor is:
MPS1U1B1LS1U1B0 = 24LS1U1P1-1/2S1S1P0
Suppose that the firm is a competitor in the green chalk market. The price of green chalk is $1 per unit. Further suppose that the firm is a competitor in the labor market. The wage rate is $12.00 per hour.
-Given the information in Scenario 14.1, how much labor will be hired to maximize profit?

Accepted Answer

A)  1/16 
B)  1/2 
C)  1 
D)  4 
A)  1/16 
B)  1/2 
C)  1 
D)  4

Question 8

For a monopsony buyer of an input, the marginal expenditure curve

Accepted Answer

A)  lies above the average expenditure curve. 
B)  lies below the average expenditure curve. 
C)  is identical to the average expenditure curve. 
D)  lies below the input demand curve. 
A)  lies above the average expenditure curve. 
B)  lies below the average expenditure curve. 
C)  is identical to the average expenditure curve. 
D)  lies below the input demand curve.

Question 9

In the United States, major league baseball is exempt from antitrust laws. Before 1975, the baseball team owners agreed to hold an annual draft of amateur baseball players. Once the players were drafted and signed by a team, they were effectively tied to that team for life. This allowed baseball owners to operate like ________ in the market for player services.

Accepted Answer

A)  perfect competitors 
B)  monopolistic competitors 
C)  a monopsonistic cartel 
D)  a monopoly 
A)  perfect competitors 
B)  monopolistic competitors 
C)  a monopsonistic cartel 
D)  a monopoly

Question 10

Clarke Mementos manufactures small figurines that they sell to retailers around the country. Clarke sells the figurines for $5.00 each, a price the firm considers given. Clarke's production function is given by the expression:
Q = 60L - 0.5L2,
where Q = number of figurines per day, and L = number of skilled workers per day. Based on this production function, the average and marginal products of labor are as follows:
AP = 60 - 0.5L MP = 60 - L
a. Write an expression for the firm's marginal revenue product.
b. Clarke currently pays $150 per day (including fringe benefits) for each of its skilled workers. How many workers should the firm employ?
c. Clarke's workers are highly skilled artisans with a great deal of job mobility. The firm's managers fear that they must increase the workers' total compensation to $200 per day to remain competitive. What impact would the wage increase have upon the firm's employment?

Accepted Answer

a.
MRP = MR ∙ MP
P = MR since the firm r

Question 11

If only one firm in an industry could take advantage of a reduced wage and all other firms continue paying the old wage, how would one best describe the one firm's reaction to this reduced wage assuming labor is the only variable input? The marginal revenue product of labor curve

Accepted Answer

A)  would remain unchanged, and the firm would hire more labor at the lower wage. 
B)  shifts to the left, and the firm hires more labor at the lower wage on the new curve. 
C)  shifts to the right, and the firm hires more labor at the lower wage on the new curve. 
D)  shifts to the left, and the firm hires less labor at the lower wage on the new curve. 
E)  shifts to the right, and the firm hires less labor at the lower wage on the new curve. 
A)  would remain unchanged, and the firm would hire more labor at the lower wage. 
B)  shifts to the left, and the firm hires more labor at the lower wage on the new curve. 
C)  shifts to the right, and the firm hires more labor at the lower wage on the new curve. 
D)  shifts to the left, and the firm hires less labor at the lower wage on the new curve. 
E)  shifts to the right, and the firm hires less labor at the lower wage on the new curve.

Question 12

What can account for the negative slope of the marginal revenue product curve?

Accepted Answer

A)  Diminishing marginal utility 
B)  Diminishing marginal returns 
C)  Monopsony power 
D)  All workers eventually begin slacking. 
E)  none of the above 
A)  Diminishing marginal utility 
B)  Diminishing marginal returns 
C)  Monopsony power 
D)  All workers eventually begin slacking. 
E)  none of the above

Question 13

There is always some economic rent whenever the:

Accepted Answer

A)  demand for a factor is downward sloping. 
B)  supply of a factor is upward sloping. 
C)  supply and demand intersect. 
D)  supply of a factor is horizontal. 
A)  demand for a factor is downward sloping. 
B)  supply of a factor is upward sloping. 
C)  supply and demand intersect. 
D)  supply of a factor is horizontal.

Question 14

Suppose the local market for legal services has an upward sloping supply curve, PL = 150 + 0.0001QL where PL is the price of legal services and QL is the number of hours of legal services. If the equilibrium price of legal services is $250 per hour and the average number of hours that a lawyer works per year is 2,500, what is the average economic rent earned per lawyer in this market?

Accepted Answer

A)  $10,000 
B)  $20,000 
C)  $50,000 
D)  $1,000,000 
A)  $10,000 
B)  $20,000 
C)  $50,000 
D)  $1,000,000

Question 15

Suppose labor and capital are variable inputs. The wage rate is $20 per hour, the marginal product of labor is 30 units, the rental rate of capital is $100 per machine hour, and the marginal product of capital is 150 units. If the wage rate declines to $15 per hour, the firm employs more labor and the marginal product of labor declines to 20 units. Assuming the rental rate of capital remains the same, what happens to the amount of capital used by the firm?

Accepted Answer

A)  Decreases 
B)  Increases 
C)  No change 
D)  We do not have enough information to answer this question. 
A)  Decreases 
B)  Increases 
C)  No change 
D)  We do not have enough information to answer this question.

Question 16

Scenario 14.4:
John's firm is a competitor in your product market and a monopsonist in the labor market. The current market price of the product that your firm produces is $2. The total product and marginal product of labor are given as:
TP = 100L - 0.125LS1U1P12 S1S1P0MP = 100 - 0.25L
where L is the amount of labor employed. The supply curve for labor and the marginal expenditure curve for labor are given as follows:
L = PS1U1B1LS1U1B0 -5 MES1U1B1LS1U1B0 = 2L + 5
-Refer to Scenario 14.4. Suppose that the price of the product rises to $5. Which of the following curves shifts?

Accepted Answer

A)  MP curve 
B)  MRP curve 
C)  Supply of labor curve 
D)  Marginal expenditure curve 
A)  MP curve 
B)  MRP curve 
C)  Supply of labor curve 
D)  Marginal expenditure curve

Question 17

The following expressions describe a perfectly competitive labor market. The labor supply curve is:
SL = AE = $3.00 + $0.000375L.
The marginal revenue product of labor curve is:
MRPL = $13.00 - 0.000433L.
a. Find the equilibrium wage in this labor market. Also, find the optimal number of labor hours worked per week. Let L represent the number of labor hours worked per week, and let W represent the hourly wage of workers.
b. Determine the economic rent earned by labor in this situation.

Accepted Answer

a.
The equilibrium wage and number of la

Question 18

Which of the following statements is TRUE when comparing monopsony and competitive labor markets?

Accepted Answer

A)  The monopsony hires more workers but pays a lower wage. 
B)  The monopsony hires more workers at a higher wage. 
C)  The monopsonist's wage is lower and quantity of labor higher than would prevail under competition. 
D)  The monopsonist's wage and quantity of labor are lower than would prevail under perfect competition. 
A)  The monopsony hires more workers but pays a lower wage. 
B)  The monopsony hires more workers at a higher wage. 
C)  The monopsonist's wage is lower and quantity of labor higher than would prevail under competition. 
D)  The monopsonist's wage and quantity of labor are lower than would prevail under perfect competition.

Question 19

Currently, Trisha's Fashion Boutique uses 2 sewing machines in the production of dresses (K represents the number of sewing machines). Trisha's marginal product of labor function is
MPL (L, K) =   
- 0.01L. Trisha can sell all the dresses she produces for $150 per unit and hire all the labor units she desires at $25 per unit. What happens to Trisha's optimal labor employment if she increases the number of sewing machines to 4?

Accepted Answer

Trisha's marginal revenue of the product

Question 20

Maureen's Custodial Services has a monopoly in custodial services in the local community. The relevant marginal revenue of custodial services as a function of labor employment is:
MR(L) = 70 - 0.029L.
The marginal product of labor in providing custodial services is 0.1. Maureen is a price taker in the labor employment market and the market price of labor is $6. Determine Maureen's optimal employment of labor.

Accepted Answer

Maureen's marginal revenue of the produc

The substitution effect of a decrease in the wage will

Based on the example provided by the authors, what is the key factor that explains much of the growing inequality in wages paid to different types of workers in the U.S. since 1980?

Which of the following is NOT true about the supply of labor to the firm in a competitive labor market?

For a monopsony buyer of an input, the marginal expenditure curve

If only one firm in an industry could take advantage of a reduced wage and all other firms continue paying the old wage, how would one best describe the one firm's reaction to this reduced wage assuming labor is the only variable input? The marginal revenue product of labor curve

What can account for the negative slope of the marginal revenue product curve?

There is always some economic rent whenever the:

Which of the following statements is TRUE when comparing monopsony and competitive labor markets?

Preliminaries

The Basics of Supply and Demand

Consumer Behavior

Individual and Market Demand

Uncertainty and Consumer Behavior

Production

The Cost of Production

Profit Maximization and Competitive Supply

The Analysis of Competitive Markets

Market Power: Monopoly and Monopsony

Pricing With Market Power

Monopolistic Competition and Oligopoly

Game Theory and Competitive Strategy

Investment, Time, and Capital Markets

General Equilibrium and Economic Efficiency

Markets With Asymmetric Information

Externalities and Public Goods

Filters

Exam 14: Markets for Factor Inputs

The substitution effect of a decrease in the wage will

Based on the example provided by the authors, what is the key factor that explains much of the growing inequality in wages paid to different types of workers in the U.S. since 1980?

Which of the following is NOT true about the supply of labor to the firm in a competitive labor market?

For a monopsony buyer of an input, the marginal expenditure curve

If only one firm in an industry could take advantage of a reduced wage and all other firms continue paying the old wage, how would one best describe the one firm's reaction to this reduced wage assuming labor is the only variable input? The marginal revenue product of labor curve

What can account for the negative slope of the marginal revenue product curve?

There is always some economic rent whenever the:

Which of the following statements is TRUE when comparing monopsony and competitive labor markets?

Preliminaries

The Basics of Supply and Demand

Consumer Behavior

Individual and Market Demand

Uncertainty and Consumer Behavior

Production

The Cost of Production

Profit Maximization and Competitive Supply

The Analysis of Competitive Markets

Market Power: Monopoly and Monopsony

Pricing With Market Power

Monopolistic Competition and Oligopoly

Game Theory and Competitive Strategy

Investment, Time, and Capital Markets

General Equilibrium and Economic Efficiency

Markets With Asymmetric Information

Externalities and Public Goods

Filters