Question 1

Under what circumstances will the economic rent earned by a factor of production always be zero?

Accepted Answer

A)  Infinitely inelastic supply curve 
B)  Infinitely elastic supply curve 
C)  Somewhat inelastic supply curve 
D)  Elastic demand curve 
A)  Infinitely inelastic supply curve 
B)  Infinitely elastic supply curve 
C)  Somewhat inelastic supply curve 
D)  Elastic demand curve

Question 2

Under an upward sloping supply curve for land, the economic rents to land ________ as the demand for land shifts rightward.

Accepted Answer

A)  decrease 
B)  increase 
C)  remain the same 
D)  We do not have enough information to answer this question. 
A)  decrease 
B)  increase 
C)  remain the same 
D)  We do not have enough information to answer this question.

Question 3

Data in the following table refer to the purchase of a resource by a pure monopsonist. Let the resource be labor time L, measured in hundreds of hours per day.
Units of Labor Marginal Average Marginal Revenue
Input Expenditure Expenditure Product
L ME AE MRP
1 10 10 16
2 12 11 15
3 14 12 14
4 16 13 13
5 18 14 12
6 20 15 11
7 22 16 10
8 24 17 9
a. Determine the profit maximizing purchase rate of labor for the monopsonist.
b. If this market were not monopsonistic but competitive, what would be the purchase rate of labor time?
c. Determine the equilibrium wage rate in both the monopsonistic and competitive markets?

Accepted Answer

a.
Equate ME to MRP. This occurs at L =

Question 4

The market for production workers in a Midwestern metropolitan area is highly competitive. The market supply and demand curves for production workers are given as:
LS = -2500 + 1000W LD = 10500 - 625W,
where LD = labor demand is full time workers per hour,
LS = labor supply is full time workers per hour,
and W = hourly wage. White Manufacturing Co. employs production workers in the manufacture of bearings for skate boards. The firm's production function is given by the expression:
Q = 88.8L - 0.5L2,
where Q = output, measured as boxes of bearings per hour, and L = number of workers employed per hour. From this production function, the marginal product and average product of labor are:
MP = 88.8 - L AP = 88.8 - 0.5L
White currently sells bearings for $10 per box.
a. Determine the equilibrium wage and level of employment in the market. Calculate the total rent that is being earned by workers.
b. Determine the number of workers that White Manufacturing would employ at the wage determined in part (a). What total output will White produce?

Accepted Answer

a. L_S = -2500 + 1000W L_D = 10500 - 625W Eq

Question 5

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 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 6

The Acme Company is a perfect competitor in its input markets and its output market. Its average product of labor is at its maximum and equals 30. The marginal revenue product of labor is $300. The price of its output

Accepted Answer

A)  is $0.10. 
B)  is $10. 
C)  is $9,000. 
D)  cannot be determined without more information. 
A)  is $0.10. 
B)  is $10. 
C)  is $9,000. 
D)  cannot be determined without more information.

Question 7

Assume that labor and capital are complements in production and that the wage declines. Which of the following statements best describes the adjustment in the use of labor?

Accepted Answer

A)  Adjustments in labor use are not influenced by adjustments in capital use. 
B)  The MRPL curve shifts downward in this case. 
C)  More labor is used both because of the reduced wage and increased use of capital. 
D)  Changes in labor use are indeterminate because the reduced wage and reduced use of capital have opposite influences on the use of labor. 
A)  Adjustments in labor use are not influenced by adjustments in capital use. 
B)  The MRPL curve shifts downward in this case. 
C)  More labor is used both because of the reduced wage and increased use of capital. 
D)  Changes in labor use are indeterminate because the reduced wage and reduced use of capital have opposite influences on the use of labor.

Question 8

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, what is the aggregate economic rent earned by lawyers in this market?

Accepted Answer

A)  $50,000 
B)  $1,000,000 
C)  $50,000,000 
D)  $100,000,000 
A)  $50,000 
B)  $1,000,000 
C)  $50,000,000 
D)  $100,000,000

Question 9

In a competitive labor market, the supply of labor curve is expressed as:
AE = $5 + 0.0025L,
where AE represents the average expenditure ($/unit) and L represents units of labor hired per unit of time. The demand for labor is based on the following expression:
MP = 5 - 0.001L,
where MP represents marginal product of labor. Revenue from the final good is $5 per unit sold in a competitive market.
a. Determine the equilibrium wage rate and labor employment rate.
b. Compute the economic rent earned by labor.

Accepted Answer

a.
The equilibrium employment rate is de

Question 10

The marginal expenditure curve for labor is based on the assumption that

Accepted Answer

A)  the most productive workers are hired first. 
B)  the wage rate is independent of the quantity of labor employed. 
C)  the market supply curve for labor is infinitely elastic. 
D)  all workers are paid the same wage rate. 
E)  none of the above 
A)  the most productive workers are hired first. 
B)  the wage rate is independent of the quantity of labor employed. 
C)  the market supply curve for labor is infinitely elastic. 
D)  all workers are paid the same wage rate. 
E)  none of the above

Question 11

Figure 14.4
-Given the information in Figure 14.4, the monopsony wage rate is:

Accepted Answer

A)  W1. 
B)  W2. 
C)  W3. 
D)  W4. 
E)  none of the above 
A)  W1. 
B)  W2. 
C)  W3. 
D)  W4. 
E)  none of the above

Question 12

The marginal product of labor for Acme, Inc. is 15. The average product of labor is 25, and the price of labor is $10. Assuming that Acme, Inc. is a competitor in its output and input markets, the marginal revenue product of labor:

Accepted Answer

A)  is $10. 
B)  is $150. 
C)  is $250. 
D)  is $375. 
E)  cannot be determined with the information provided. 
A)  is $10. 
B)  is $150. 
C)  is $250. 
D)  is $375. 
E)  cannot be determined with the information provided.

Question 13

In the competitive output market for good Q, the marginal revenue product for an input X can be expressed as

Accepted Answer

A)  MPX / TRQ. 
B)  MPQ MRX. 
C)  APX MRQ. 
D)  MPX * PQ  
A)  MPX / TRQ. 
B)  MPQ MRX. 
C)  APX MRQ. 
D)  MPX * PQ

Question 14

Figure 14.4
-Given the information in Figure 14.4, the bilateral monopoly wage rate is:

Accepted Answer

A)  W1. 
B)  W2. 
C)  W3. 
D)  W4. 
E)  Any of the above. 
A)  W1. 
B)  W2. 
C)  W3. 
D)  W4. 
E)  Any of the above.

Question 15

Suppose the labor market is perfectly competitive, but the output market is not. When the labor market is in equilibrium, the wage rate will:

Accepted Answer

A)  be less than the marginal revenue product of labor. 
B)  equal the marginal revenue product of labor. 
C)  be greater than the marginal revenue product of labor. 
D)  None of the above is necessarily correct. 
A)  be less than the marginal revenue product of labor. 
B)  equal the marginal revenue product of labor. 
C)  be greater than the marginal revenue product of labor. 
D)  None of the above is necessarily correct.

Question 16

The table below shows a firm's output per day for zero through six workers.
Q L
0 0
46 1
84 2
114 3
136 4
150 5
156 6
The firm's demand and marginal revenue curves are:
P = 50 - 0.125Q MR = 50 - 0.25Q,
where Q = daily sales, and P = output price.
a. Determine the marginal product of labor for one through six workers.
b. Determine the firm's marginal revenue product.
c. How many workers should the firm hire if total wage costs including fringe benefits are $30 per hour? (Each worker is employed for eight hours per day.)

Accepted Answer

a.
Marginal product is change in total p

Question 17

Which of the following is NOT a factor that has contributed to declining private-sector differential between union and nonunion wages in the U.S. since 1980?

Accepted Answer

A)  Globalization of the production process 
B)  Improved ability of firms to substitute capital for labor in production 
C)  Adoption of two-tiered wage and benefit structures by unionized firms 
D)  Declines in the unemployment and health insurance premiums paid by union workers 
A)  Globalization of the production process 
B)  Improved ability of firms to substitute capital for labor in production 
C)  Adoption of two-tiered wage and benefit structures by unionized firms 
D)  Declines in the unemployment and health insurance premiums paid by union workers

Question 18

A new motor manufacturing technology changes Ronald's Outboard Motor marginal product of labor from MPL (L) =   
to MP'L L(L) =   
. If Ronald can sell all the motors he produces for $100 and pays each unit of labor $10, what happens to the level of employment due to this technology change?

Accepted Answer

Ronald's original marginal revenue of th

Question 19

Figure 14.1
A consumer's original utility maximizing combination of income and leisure is shown in the diagram above as point A. After a wage increase, the consumer's utility maximizing combination changes to point C.
-Refer to Figure 14.1. The income effect of the wage increase on the amount of hours of leisure is:

Accepted Answer

A)  L0 to L2. 
B)  L0 to L1. 
C)  L1 to L2. 
D)  L2 to L1. 
E)  none of the above 
A)  L0 to L2. 
B)  L0 to L1. 
C)  L1 to L2. 
D)  L2 to L1. 
E)  none of the above

Question 20

Suppose the supply and demand of land for natural gas extraction are imperfectly elastic. Given that coal is a potential substitute for natural gas in energy applications, a change in the price of coal may shift the demand curve for natural gas. What happens to the economic rents assigned to land on which natural gas is extracted if the price of coal declines?

Accepted Answer

A)  Rents increase 
B)  Rents are positive and remain unchanged 
C)  Rents decrease 
D)  Rents are zero before and after the change 
A)  Rents increase 
B)  Rents are positive and remain unchanged 
C)  Rents decrease 
D)  Rents are zero before and after the change

Under what circumstances will the economic rent earned by a factor of production always be zero?

Under an upward sloping supply curve for land, the economic rents to land ________ as the demand for land shifts rightward.

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 union workers if the union exercises its bargaining power?

The Acme Company is a perfect competitor in its input markets and its output market. Its average product of labor is at its maximum and equals 30. The marginal revenue product of labor is $300. The price of its output

Assume that labor and capital are complements in production and that the wage declines. Which of the following statements best describes the adjustment in the use of labor?

The marginal expenditure curve for labor is based on the assumption that

Figure 14.4 -Given the information in Figure 14.4, the monopsony wage rate is:

The marginal product of labor for Acme, Inc. is 15. The average product of labor is 25, and the price of labor is $10. Assuming that Acme, Inc. is a competitor in its output and input markets, the marginal revenue product of labor:

In the competitive output market for good Q, the marginal revenue product for an input X can be expressed as

Figure 14.4 -Given the information in Figure 14.4, the bilateral monopoly wage rate is:

Suppose the labor market is perfectly competitive, but the output market is not. When the labor market is in equilibrium, the wage rate will:

Which of the following is NOT a factor that has contributed to declining private-sector differential between union and nonunion wages in the U.S. since 1980?

A new motor manufacturing technology changes Ronald's Outboard Motor marginal product of labor from MP_L (L) = to MP'_L_L(L) = . If Ronald can sell all the motors he produces for $100 and pays each unit of labor $10, what happens to the level of employment due to this technology change?

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

Under what circumstances will the economic rent earned by a factor of production always be zero?

Under an upward sloping supply curve for land, the economic rents to land ________ as the demand for land shifts rightward.

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 union workers if the union exercises its bargaining power?

The Acme Company is a perfect competitor in its input markets and its output market. Its average product of labor is at its maximum and equals 30. The marginal revenue product of labor is $300. The price of its output

Assume that labor and capital are complements in production and that the wage declines. Which of the following statements best describes the adjustment in the use of labor?

The marginal expenditure curve for labor is based on the assumption that

Figure 14.4 -Given the information in Figure 14.4, the monopsony wage rate is:

The marginal product of labor for Acme, Inc. is 15. The average product of labor is 25, and the price of labor is $10. Assuming that Acme, Inc. is a competitor in its output and input markets, the marginal revenue product of labor:

In the competitive output market for good Q, the marginal revenue product for an input X can be expressed as

Figure 14.4 -Given the information in Figure 14.4, the bilateral monopoly wage rate is:

Suppose the labor market is perfectly competitive, but the output market is not. When the labor market is in equilibrium, the wage rate will:

Which of the following is NOT a factor that has contributed to declining private-sector differential between union and nonunion wages in the U.S. since 1980?

A new motor manufacturing technology changes Ronald's Outboard Motor marginal product of labor from MPL (L) = to MP'L L(L) = . If Ronald can sell all the motors he produces for $100 and pays each unit of labor $10, what happens to the level of employment due to this technology change?

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

A new motor manufacturing technology changes Ronald's Outboard Motor marginal product of labor from MP_L (L) = to MP'_L_L(L) = . If Ronald can sell all the motors he produces for $100 and pays each unit of labor $10, what happens to the level of employment due to this technology change?