Question 1

What is the price of a unit of labor in a competitive labor market?

Accepted Answer

The price of labor in a competitive labor market is the market wage. Competitive firms are price takers in the labor market, which means that they can hire all of the labor they want at the existing market wage.

Question 2

XYZ Corporation operates in perfectly competitive input markets and employs labor, capital, land in its production process. What three conditions must be met for the firm to be maximizing profit?

Accepted Answer

(1.) The marginal revenue product of labor must equal the price of labor. (2.) The marginal revenue product of capital must equal the price of capital. (3.) The marginal revenue product of land must equal the price of land.

Question 3

The oldest hamburger chain in the United States is White Castle, which was founded in 1921. Most of their restaurants in the early days were located in urban areas. In the 1950s they lost much of their business to McDonalds and Burger King. They were slow to respond in building restaurants on highways and in suburbs. How did the advent of the highway system in the 1950s alter residential location patterns and how might this have affected the marginal revenue product of burger chains in both urban and suburban areas. Why did sales drop off in the urban areas where White Castle had earned its initial success?

Accepted Answer

The advent of the highway system in the 1950s meant that larger numbers of people lived in residential areas located in the suburbs. That put White Castle in direct competition with fast-food chains like McDonalds and Burger King, which had located on highways and in suburban areas. Previously it wouldn't have made sense for White Castle to locate in the suburbs since there were few customers if any living there. Likewise, because of the large migration of people from the inner city to the suburbs White Castle's former customer base was being eroded.

Question 4

Alan's Roast House sells roasted peanuts in a competitive market. The firm employs labor at a wage rate of $6 per hour and rents capital for $15 per hour. At its current level of labor and capital, the marginal product of labor is 12 and the marginal product of capital is 40. Is the firm currently maximizing profit? Explain.

Accepted Answer

No, the firm is not currently maximizing

Question 5

Comment on the following statement: "The output effect and the factor substitution effect work in opposite directions, so it is possible that a decrease in the wage rate can lead to a decrease in the amount of labor hired."

Accepted Answer

The statement is false. The ou

Question 6

A firm producing bottled water reports the following production information:
   The bottled water sells in a competitive market at a price of 10 cents per gallon. The firm hires workers in a competitive labor market at a wage of $7 per hour. The firm is currently hiring 20 workers and is considering hiring another 10. What would you recommend the firm do? Why?

Accepted Answer

I would suggest that the firm hire the t

Question 7

Explain why an employer in a perfectly competitive market will hire more workers when the marginal revenue product is greater than the wage.

Accepted Answer

The marginal revenue product represents

Question 8

Use Table 10.1 to answer the following question. Construct a marginal product table from the information listed in the table and explain where diminishing marginal productivity sets in.

Accepted Answer

@#IMG-DLM& Diminishing margina

Question 9

What is pure rent?

Accepted Answer

Pure rent is the ret

Question 10

What is measured by marginal revenue product?

Accepted Answer

Marginal revenue product is th

Question 11

A firm purchasing labor in a competitive market has the following marginal revenue product curve:   The market equilibrium wage is $14 and the firm currently employs 12 workers. Is the firm maximizing profit? Explain.

Accepted Answer

No, the firm is not maximizing profit. T

Question 12

A firm producing three-ring binders reports the following production information:
   The binders sell in a competitive market at a price of $0.15 each. The firm hires workers in a competitive labor market at a wage of $10 per hour. The firm is currently hiring two workers and is considering hiring a third worker. What would you recommend the firm do? Why?

Accepted Answer

I would suggest that the firm hire the t

Question 13

XYZ Corporation sells boxes in a competitive market. The price of the boxes is $2 each. Hourly output varies with the amount of labor hired as follows:
   Fill in the columns for marginal product of labor and marginal revenue product.

Accepted Answer

The answer of XYZ Corporation sells boxes in a competitive...

Question 14

Comment on the following statement: "Even though the supply of land is perfectly inelastic, the supply of land in a given use may not be fixed."

Accepted Answer

The statement is true. When the value of

Question 15

What is the profit-maximizing condition for a firm when trying to decide how much land to use for production?

Accepted Answer

A firm will pay for and use land as long

Question 16

What does it mean when an economist says that a firm is buying labor in a competitive market?

Accepted Answer

If a firm is buying labor in a competiti

Question 17

Assume that an employer discovers that the marginal revenue product of the last two workers that he has hired is less than the wage rate that he is paying them. He is operating in a purely competitive market in both the output that he sells and the labor that he hires. What would you advise this employer to do and why?

Accepted Answer

It would be advisable if this employer l

Question 18

A firm purchasing labor in a competitive market has the following marginal revenue product curve:   How many workers should the firm hire if the wage is $15? What if the wage falls to $12? Explain.

Accepted Answer

If the wage is $15, the firm should hire

Question 19

Use Table 10.1 to answer the following question. Construct a marginal revenue product table from the information listed in the table assuming that the firm can sell its product in a purely competitive market at value added price of $.50.

Accepted Answer

@#IMG-DLM& MRP is simply the M

Question 20

Using a supply and demand curve show what economists mean when they say that land is "demand determined." Explain your answer.

Accepted Answer

Because land in general (and each parcel

What is the price of a unit of labor in a competitive labor market?

XYZ Corporation operates in perfectly competitive input markets and employs labor, capital, land in its production process. What three conditions must be met for the firm to be maximizing profit?

Comment on the following statement: "The output effect and the factor substitution effect work in opposite directions, so it is possible that a decrease in the wage rate can lead to a decrease in the amount of labor hired."

Explain why an employer in a perfectly competitive market will hire more workers when the marginal revenue product is greater than the wage.

Use Table 10.1 to answer the following question. Construct a marginal product table from the information listed in the table and explain where diminishing marginal productivity sets in.

What is pure rent?

What is measured by marginal revenue product?

A firm purchasing labor in a competitive market has the following marginal revenue product curve: The market equilibrium wage is $14 and the firm currently employs 12 workers. Is the firm maximizing profit? Explain.

XYZ Corporation sells boxes in a competitive market. The price of the boxes is $2 each. Hourly output varies with the amount of labor hired as follows: Fill in the columns for marginal product of labor and marginal revenue product.

Comment on the following statement: "Even though the supply of land is perfectly inelastic, the supply of land in a given use may not be fixed."

What is the profit-maximizing condition for a firm when trying to decide how much land to use for production?

What does it mean when an economist says that a firm is buying labor in a competitive market?

A firm purchasing labor in a competitive market has the following marginal revenue product curve: How many workers should the firm hire if the wage is $15? What if the wage falls to $12? Explain.

Use Table 10.1 to answer the following question. Construct a marginal revenue product table from the information listed in the table assuming that the firm can sell its product in a purely competitive market at value added price of $.50.

Using a supply and demand curve show what economists mean when they say that land is "demand determined." Explain your answer.

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Social Choice

Filters

Exam 10: Input Demand: the Labor and Land Markets

What is the price of a unit of labor in a competitive labor market?

XYZ Corporation operates in perfectly competitive input markets and employs labor, capital, land in its production process. What three conditions must be met for the firm to be maximizing profit?

Comment on the following statement: "The output effect and the factor substitution effect work in opposite directions, so it is possible that a decrease in the wage rate can lead to a decrease in the amount of labor hired."

Explain why an employer in a perfectly competitive market will hire more workers when the marginal revenue product is greater than the wage.

Use Table 10.1 to answer the following question. Construct a marginal product table from the information listed in the table and explain where diminishing marginal productivity sets in.

What is pure rent?

What is measured by marginal revenue product?

A firm purchasing labor in a competitive market has the following marginal revenue product curve: The market equilibrium wage is $14 and the firm currently employs 12 workers. Is the firm maximizing profit? Explain.

XYZ Corporation sells boxes in a competitive market. The price of the boxes is $2 each. Hourly output varies with the amount of labor hired as follows: Fill in the columns for marginal product of labor and marginal revenue product.

Comment on the following statement: "Even though the supply of land is perfectly inelastic, the supply of land in a given use may not be fixed."

What is the profit-maximizing condition for a firm when trying to decide how much land to use for production?

What does it mean when an economist says that a firm is buying labor in a competitive market?

A firm purchasing labor in a competitive market has the following marginal revenue product curve: How many workers should the firm hire if the wage is $15? What if the wage falls to $12? Explain.

Use Table 10.1 to answer the following question. Construct a marginal revenue product table from the information listed in the table assuming that the firm can sell its product in a purely competitive market at value added price of $.50.

Using a supply and demand curve show what economists mean when they say that land is "demand determined." Explain your answer.

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Social Choice

Filters