Exam 15: The Demand for Factors of Production

Reducing Long-Run Labor Usage The following questions refer to the accompanying diagram, which shows a firm reducing its long-run labor usage from L0 to L1 in response to an increase in the wage rate. -Refer to Reducing Long-Run Labor Usage.The diagram illustrates the situation where

Derived demand for an input is the process by which individual firm's demand for labor are aggregated to get the industry demand for labor.

In long-run equilibrium,a competitive firm can earn zero profit only if its technology exhibits

The substitution effect on labor always decreases the amount of labor employed when the wage rate goes up.

When will a wage increase cause a firm to produce more output in the long run?

Both the competitive firm's demand curve for labor and the monopoly firm's demand curve for labor always slope downwards.

If labor and capital are complements in production,additions to capital will increase both the total and marginal products of labor.

Suppose labor and capital are the only factors of production.Capital is fixed and has a perfectly inelastic supply,so all income earned by capital is rent.A Japanese-owned factory is built in the U.S.and employs only American workers.Let D_US represent the demand for labor in American factories and D_J represent the demand for labor in the new Japanese factory.The effect of the new factory on the American labor market is shown in the accompanying diagram.

If labor and capital are complements in production,then an increase in the amount of capital will

The substitution effect of a rise in the wage may increase or decrease the firm's employment of labor.

Consider the usual case where a higher wage rate increases firms' marginal costs.In this case,the industry's demand curve for labor

Labor Demand and Labor Supply The following questions refer to the accompanying diagram, which shows an industry's labor demand and labor supply. Labor and capital are the only factors used by the industry. The industry hires L units of labor at a wage of PL. -Refer to Labor Demand and Labor Supply.Suppose firms in the industry earn zero profit.The total rental payment made to the industry's capital is measured by

As the amount of labor used in production increases,total product

Labor Demand and Labor Supply The following questions refer to the accompanying diagram, which shows an industry's labor demand and labor supply. Labor and capital are the only factors used by the industry. The industry hires L units of labor at a wage of PL. -Refer to Labor Demand and Labor Supply.What does area A + B + C represent?

A competitive firm's short-run demand for labor will rise when the price of its product rises.

If a firm has monopoly power in the market for its output,the marginal revenue product of labor

If labor and capital are substitutes in production,then an increase in the amount of capital will

When a firm increases its capital usage

Factors that are supplied relatively inelastically earn more rents than those supplied more elastically.

When an industry's demand curve for labor is derived from the individual firms' demand curves,what complication must be taken into account?