Question 1

An increase in the demand for HDTV sets leads to an increase in demand for LCD and LED TV screens. This situation arises because

Accepted Answer

A) LCD and LED screens minimize the costs of production. 
B) the supply of LCD and LED screens has decreased. 
C) the demand for LCD and LED screens is a derived demand. 
D) of foreign production of LCD and LED screens. 
A) LCD and LED screens minimize the costs of production. 
B) the supply of LCD and LED screens has decreased. 
C) the demand for LCD and LED screens is a derived demand. 
D) of foreign production of LCD and LED screens.

Question 2

A firm will be hiring labor and capital in profit-maximizing amounts when

Accepted Answer

A) MRP capital/price of capital equals MRP labor/price of labor. 
B) MRP capital/MRP labor equals price of labor/price of capital. 
C) MRP capital/price of capital equals MRP labor/price of labor equals 1. 
D) the MRP of the last unit hired of both labor and capital are the same. 
A) MRP capital/price of capital equals MRP labor/price of labor. 
B) MRP capital/MRP labor equals price of labor/price of capital. 
C) MRP capital/price of capital equals MRP labor/price of labor equals 1. 
D) the MRP of the last unit hired of both labor and capital are the same.

Question 3

Refer to the table, which gives data for a firm that is hiring labor in a purely competitive market. If the wage rate is $56, how many workers will the firm choose to employ?

Accepted Answer

A) 3 
B) 2 
C) 0 
D) 1 
A) 3 
B) 2 
C) 0 
D) 1

Question 4

The marginal productivity theory of income distribution suggests that

Accepted Answer

A) government should subsidize the most productive workers through a system of transfer payments. 
B) each individual receives income based on his or her contribution to total output. 
C) resource owners should receive income based on the idea of "from each according to his ability, to each according to his wants." 
D) resource owners should receive income based upon their needs. 
A) government should subsidize the most productive workers through a system of transfer payments. 
B) each individual receives income based on his or her contribution to total output. 
C) resource owners should receive income based on the idea of "from each according to his ability, to each according to his wants." 
D) resource owners should receive income based upon their needs.

Question 5

The table is for a purely competitive market for resources. How many more workers will the firm hire when the wage rate is $15 instead of $30?

Accepted Answer

A) 1 worker 
B) 2 workers 
C) 3 workers 
D) 4 workers 
A) 1 worker 
B) 2 workers 
C) 3 workers 
D) 4 workers

Question 6

How is marginal revenue product reflected in "winner-take-all" markets, such as in the music industry?

Accepted Answer

In the music industry, there is stiff co

Question 7

Marginal resource cost is

Accepted Answer

A) the increase in variable costs resulting from producing one more unit of output. 
B) the increase in fixed costs resulting from producing one more unit of output. 
C) the same as the marginal cost of the product. 
D) the same as the resource price when a firm is acquiring the resource in a purely competitive market. 
A) the increase in variable costs resulting from producing one more unit of output. 
B) the increase in fixed costs resulting from producing one more unit of output. 
C) the same as the marginal cost of the product. 
D) the same as the resource price when a firm is acquiring the resource in a purely competitive market.

Question 8

The table gives marginal product data for resources a and b. The output of these independent resources sells in a purely competitive market at $1 per unit. Assuming the prices of resources a and b are $10 and $20 respectively, what is the profit-maximizing combination of resources?

Accepted Answer

A) 6 of a and 3 of b 
B) 3 of a and 6 of b 
C) 5 of a and 4 of b 
D) 4 of a and 5 of b 
A) 6 of a and 3 of b 
B) 3 of a and 6 of b 
C) 5 of a and 4 of b 
D) 4 of a and 5 of b

Question 9

The table is for a purely competitive market for resources. If the product price increases from $3 to $4, then at the wage rate of $15, the firm will hire

Accepted Answer

A) 2 workers. 
B) 3 workers. 
C) 4 workers. 
D) 5 workers. 
A) 2 workers. 
B) 3 workers. 
C) 4 workers. 
D) 5 workers.

Question 10

Harry owns a barbershop and charges $6 per haircut. By hiring one barber at $10 per hour, the shop can provide 24 haircuts per eight-hour day. By hiring a second barber at the same wage rate, the shop can now provide a total of 42 haircuts per day. Harry should

Accepted Answer

A) hire the second barber because she will add $28 to profits. 
B) hire the second barber because she will add $108 to profits. 
C) not hire the second barber, because she is less productive than the first barber. 
D) not hire the second barber, because she will diminish profits. 
A) hire the second barber because she will add $28 to profits. 
B) hire the second barber because she will add $108 to profits. 
C) not hire the second barber, because she is less productive than the first barber. 
D) not hire the second barber, because she will diminish profits.

Question 11

To maximize profits, a competitive firm will maximize the difference between MRP and the wage rate for the laborers it hires.

Accepted Answer

A) True 
 B)False

Question 12

Those who advocate the marginal productivity theory of income distribution argue that

Accepted Answer

A) government policy should be used to redistribute income based on need. 
B) family income should be based on a family's demand for products. 
C) resource markets will set incomes based on workers' contributions to the output of scarce goods and services. 
D) monopoly and monopsony power do not affect resource payments of the overall distribution of income. 
A) government policy should be used to redistribute income based on need. 
B) family income should be based on a family's demand for products. 
C) resource markets will set incomes based on workers' contributions to the output of scarce goods and services. 
D) monopoly and monopsony power do not affect resource payments of the overall distribution of income.

Question 13

A firm will employ more of an input whose relative price has fallen and, conversely, will use less of an input whose relative price has risen. Thus, a fall in the price of capital will increase the relative price of labor and thereby reduce the demand for labor. This describes the

Accepted Answer

A) output effect. 
B) substitution effect. 
C) idea of derived demand. 
D) law of diminishing returns. 
A) output effect. 
B) substitution effect. 
C) idea of derived demand. 
D) law of diminishing returns.

Question 14

What is the elasticity of resource demand? List the three factors that determine elasticity of resource demand.

Accepted Answer

Elasticity of resource demand is a measu

Question 15

Critics of the marginal productivity theory of income distribution claim that the theory is flawed because of

Accepted Answer

A) the law of diminishing returns. 
B) the existence of imperfect competition, such as of monopoly and monopsony, in output and resource markets. 
C) the problem of comparing different kinds of resources, such as capital and labor. 
D) government policies that redistribute income. 
A) the law of diminishing returns. 
B) the existence of imperfect competition, such as of monopoly and monopsony, in output and resource markets. 
C) the problem of comparing different kinds of resources, such as capital and labor. 
D) government policies that redistribute income.

Question 16

A farmer who has fixed amounts of land and capital finds that total product is 24 for the first worker hired, 32 when two workers are hired, 37 when three are hired, and 40 when four are hired. The farmer's product sells for $2.50 per unit, and the wage rate is $19 per worker. The marginal product of the first worker is

Accepted Answer

A) 19 
B) 1 
C) 60 
D) 24 
A) 19 
B) 1 
C) 60 
D) 24

Question 17

The marginal revenue product of labor refers to the

Accepted Answer

A) additional output produced by adding one more unit of labor. 
B) marginal product of an additional unit of labor. 
C) additional revenue resulting from using one more unit of labor. 
D) number of units of output produced by a given number of units of labor. 
A) additional output produced by adding one more unit of labor. 
B) marginal product of an additional unit of labor. 
C) additional revenue resulting from using one more unit of labor. 
D) number of units of output produced by a given number of units of labor.

Question 18

Assume Manfred's Shoe Shine Parlor hires labor, its only variable input, under purely competitive conditions. Shoe shines are also sold competitively.   At what price does each shoe shine sell?

Accepted Answer

A) $1 
B) $2 
C) $3 
D) $2.50 
A) $1 
B) $2 
C) $3 
D) $2.50

Question 19

Changes in the price of a product would not shift the demand for the resources needed to produce the product.

Accepted Answer

A) True 
 B)False

Question 20

Other things being equal, the elasticity of demand for labor will be greater the

Accepted Answer

A) smaller the proportion of total costs accountable for by labor costs. 
B) smaller the elasticity of demand for the product it produces. 
C) larger the number of close substitute resources available. 
D) more rapid the decline in its marginal productivity. 
A) smaller the proportion of total costs accountable for by labor costs. 
B) smaller the elasticity of demand for the product it produces. 
C) larger the number of close substitute resources available. 
D) more rapid the decline in its marginal productivity.

Exam 16: The Demand for Resources

An increase in the demand for HDTV sets leads to an increase in demand for LCD and LED TV screens. This situation arises because

A firm will be hiring labor and capital in profit-maximizing amounts when

Refer to the table, which gives data for a firm that is hiring labor in a purely competitive market. If the wage rate is $56, how many workers will the firm choose to employ?

The marginal productivity theory of income distribution suggests that

The table is for a purely competitive market for resources. How many more workers will the firm hire when the wage rate is $15 instead of $30?

How is marginal revenue product reflected in "winner-take-all" markets, such as in the music industry?

Marginal resource cost is

The table gives marginal product data for resources a and b. The output of these independent resources sells in a purely competitive market at $1 per unit. Assuming the prices of resources a and b are $10 and $20 respectively, what is the profit-maximizing combination of resources?

The table is for a purely competitive market for resources. If the product price increases from $3 to $4, then at the wage rate of $15, the firm will hire

Harry owns a barbershop and charges $6 per haircut. By hiring one barber at $10 per hour, the shop can provide 24 haircuts per eight-hour day. By hiring a second barber at the same wage rate, the shop can now provide a total of 42 haircuts per day. Harry should

To maximize profits, a competitive firm will maximize the difference between MRP and the wage rate for the laborers it hires.

Those who advocate the marginal productivity theory of income distribution argue that

A firm will employ more of an input whose relative price has fallen and, conversely, will use less of an input whose relative price has risen. Thus, a fall in the price of capital will increase the relative price of labor and thereby reduce the demand for labor. This describes the

What is the elasticity of resource demand? List the three factors that determine elasticity of resource demand.

Critics of the marginal productivity theory of income distribution claim that the theory is flawed because of

The marginal revenue product of labor refers to the

Assume Manfred's Shoe Shine Parlor hires labor, its only variable input, under purely competitive conditions. Shoe shines are also sold competitively. At what price does each shoe shine sell?

Changes in the price of a product would not shift the demand for the resources needed to produce the product.

Other things being equal, the elasticity of demand for labor will be greater the

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