Question 1

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 2

For a firm selling its product in an imperfectly competitive market, the marginal revenue product of labor can be found by

Accepted Answer

A)  adding marginal product to total product as one more unit of labor is employed. 
B)  adding marginal revenue to total product as one more unit of labor is employed. 
C)  multiplying marginal product by product price. 
D)  multiplying marginal product by marginal revenue. 
A)  adding marginal product to total product as one more unit of labor is employed. 
B)  adding marginal revenue to total product as one more unit of labor is employed. 
C)  multiplying marginal product by product price. 
D)  multiplying marginal product by marginal revenue.

Question 3

Assume that a purely competitive firm uses two resources, labor (L) and capital (C), to produce a certain product. In which situation would the firm be maximizing profit? $\begin{array}{|c|c|c|c|c|} 
\hline & \text { MRPL } & \text { MRPC } & \text { PL } & \text { PC } \
\hline \text { A } & \$ 100 & \$ 200 & \$ 300 & \$ 400 \
\hline \text { B } & \$ 100 & \$ 200 & \$ 200 & \$ 100 \
\hline \text { C } & \$ 150 & \$ 200 & \$ 150 & \$ 200 \
\hline \text { D } & \$ 300 & \$ 400 & \$ 300 & \$ 200\
\hline 
\end{array}$

Accepted Answer

A)  Case A 
B)  Case B 
C)  Case C 
D)  Case D 
A)  Case A 
B)  Case B 
C)  Case C 
D)  Case D

Question 4

For a firm selling its product in a purely competitive market, the marginal revenue product of labor can be found by

Accepted Answer

A)  adding marginal product to total product as one more unit of labor is employed. 
B)  adding marginal revenue to total product as one more unit of labor is employed. 
C)  multiplying marginal product by product price. 
D)  dividing marginal product by product price. 
A)  adding marginal product to total product as one more unit of labor is employed. 
B)  adding marginal revenue to total product as one more unit of labor is employed. 
C)  multiplying marginal product by product price. 
D)  dividing marginal product by product price.

Question 5

(Last Word) When they were first introduced, ATMs

Accepted Answer

A)  were a substitute for bank tellers, but eventually became a complement. 
B)  were a substitute for bank tellers, and their existence has continued to depress the demand for tellers. 
C)  were a complement to bank tellers, but over time have replaced them. 
D)  had no effect on the demand for bank tellers. 
A)  were a substitute for bank tellers, but eventually became a complement. 
B)  were a substitute for bank tellers, and their existence has continued to depress the demand for tellers. 
C)  were a complement to bank tellers, but over time have replaced them. 
D)  had no effect on the demand for bank tellers.

Question 6

The demand for a resource depends primarily on

Accepted Answer

A)  the supply of that resource. 
B)  the demand for the product or service that it helps produce. 
C)  the price of that input. 
D)  the elasticity of supply of substitute inputs. 
A)  the supply of that resource. 
B)  the demand for the product or service that it helps produce. 
C)  the price of that input. 
D)  the elasticity of supply of substitute inputs.

Question 7

Assume that an appliance manufacturer is employing variable resources X and Y in such amounts that the MRPs of the last units of X and Y employed are $100 and $60, respectively. Resource X can be hired at $50 per unit and resource Y at $20 per unit. The firm

Accepted Answer

A)  should hire more of both X and Y. 
B)  should hire more of Y and less of X. 
C)  is producing with the least-costly combination of X and Y but could increase its profits by employing more of X and less of Y. 
D)  is using the least-costly combination of X and Y but could increase its profits by employing less of both X and Y. 
A)  should hire more of both X and Y. 
B)  should hire more of Y and less of X. 
C)  is producing with the least-costly combination of X and Y but could increase its profits by employing more of X and less of Y. 
D)  is using the least-costly combination of X and Y but could increase its profits by employing less of both X and Y.

Question 8

If the substitution effect outweighs the output effect, an increase in the price of a substitute resource will increase the demand for labor.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following increases in labor demand is due to a change in the price of a related resource?

Accepted Answer

A)  Software sales rise, thus increasing the demand for software developers. 
B)  Snowboarding increases in popularity, thus increasing the demand for the workers who make snowboards. 
C)  A decrease in the price of wood decreases the cost of furniture, thus increasing the demand for furniture workers. 
D)  A technological change increases output per worker in the computer industry, thus increasing the demand for computer workers. 
A)  Software sales rise, thus increasing the demand for software developers. 
B)  Snowboarding increases in popularity, thus increasing the demand for the workers who make snowboards. 
C)  A decrease in the price of wood decreases the cost of furniture, thus increasing the demand for furniture workers. 
D)  A technological change increases output per worker in the computer industry, thus increasing the demand for computer workers.

Question 10

(Consider This) According to the Consider This box "Superstars," the high pay of superstars reflects

Accepted Answer

A)  elastic product demand. 
B)  high marginal revenue productivity. 
C)  blocked occupational entry. 
D)  warped societal values. 
A)  elastic product demand. 
B)  high marginal revenue productivity. 
C)  blocked occupational entry. 
D)  warped societal values.

Question 11

The demand curve for labor will most likely increase when the price of a

Accepted Answer

A)  complementary input increases, provided the substitution effect is greater than the output effect. 
B)  substitute input decreases, provided the output effect is greater than the substitution effect. 
C)  substitute input increases, provided the output effect is greater than the substitution effect. 
D)  substitute input decreases, provided the substitution effect is greater than the output effect. 
A)  complementary input increases, provided the substitution effect is greater than the output effect. 
B)  substitute input decreases, provided the output effect is greater than the substitution effect. 
C)  substitute input increases, provided the output effect is greater than the substitution effect. 
D)  substitute input decreases, provided the substitution effect is greater than the output effect.

Question 12

If two inputs are complementary and employed in fixed proportions, an increase in the price of one input will

Accepted Answer

A)  decrease the demand for the other input. 
B)  increase the demand for the other input. 
C)  increase the quantity demanded for the other input. 
D)  have no effect on the demand for the other input. 
A)  decrease the demand for the other input. 
B)  increase the demand for the other input. 
C)  increase the quantity demanded for the other input. 
D)  have no effect on the demand for the other input.

Question 13

"Income receivers should be paid in accordance with the value of output each produces." This statement is consistent with the

Accepted Answer

A)  monopoly theory of income distribution. 
B)  marginal productivity theory of income distribution. 
C)  least-cost, but not profit-maximizing, combination of inputs. 
D)  concept of compensating wage differences. 
A)  monopoly theory of income distribution. 
B)  marginal productivity theory of income distribution. 
C)  least-cost, but not profit-maximizing, combination of inputs. 
D)  concept of compensating wage differences.

Question 14

A winner-takes-all market, like that for entertainers, exhibits huge differences between the top talents and the next tier of artists in all of the following aspects, except

Accepted Answer

A)  marginal revenue product. 
B)  talent. 
C)  earnings. 
D)  media hype. 
A)  marginal revenue product. 
B)  talent. 
C)  earnings. 
D)  media hype.

Question 15

(Consider This) In the market for superstars,

Accepted Answer

A)  earnings reflect pricing power rather than marginal revenue product. 
B)  small differences in talent get magnified into huge differences in pay. 
C)  entry and exit rarely occur. 
D)  product demand is typically highly elastic. 
A)  earnings reflect pricing power rather than marginal revenue product. 
B)  small differences in talent get magnified into huge differences in pay. 
C)  entry and exit rarely occur. 
D)  product demand is typically highly elastic.

Question 16

A change in an input price will alter both production costs and the profit-maximizing output. Thus, a decline in the price of capital will reduce production costs, increase the profit-maximizing output, and thereby increase 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 17

Which of the following is equivalent to the costs that firms incur in acquiring economic resources?

Accepted Answer

A)  revenues from the product 
B)  income of the resources 
C)  money flowing from the resources 
D)  profits from the resources employed 
A)  revenues from the product 
B)  income of the resources 
C)  money flowing from the resources 
D)  profits from the resources employed

Question 18

A firm that hires labor in a purely competitive resource market is a

Accepted Answer

A)  "price maker." 
B)  "product taker." 
C)  "money maker." 
D)  "wage taker." 
A)  "price maker." 
B)  "product taker." 
C)  "money maker." 
D)  "wage taker."

Question 19

The marginal revenue product curve of a purely competitive seller declines solely because of the law of diminishing returns.

Accepted Answer

A) True 
 B)False

Question 20

A union representative observed that if the union members' wages were increased by some proportion, the workers would eventually suffer a greater than proportional decline in employment. This statement could best be explained if

Accepted Answer

A)  the new wages are to take effect immediately. 
B)  union labor can easily be replaced with capital. 
C)  union labor is an insignificant portion of the total cost of production. 
D)  the demand for the final product the workers produce is relatively inelastic. 
A)  the new wages are to take effect immediately. 
B)  union labor can easily be replaced with capital. 
C)  union labor is an insignificant portion of the total cost of production. 
D)  the demand for the final product the workers produce is relatively inelastic.

Exam 16: The Demand for Resources

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

For a firm selling its product in an imperfectly competitive market, the marginal revenue product of labor can be found by

Assume that a purely competitive firm uses two resources, labor (L) and capital (C), to produce a certain product. In which situation would the firm be maximizing profit? MRPL MRPC PL PC A \ 100 \ 200 \ 300 \ 400 B \ 100 \ 200 \ 200 \ 100 C \ 150 \ 200 \ 150 \ 200 D \ 300 \ 400 \ 300 \ 200

For a firm selling its product in a purely competitive market, the marginal revenue product of labor can be found by

(Last Word) When they were first introduced, ATMs

The demand for a resource depends primarily on

Assume that an appliance manufacturer is employing variable resources X and Y in such amounts that the MRPs of the last units of X and Y employed are $100 and $60, respectively. Resource X can be hired at $50 per unit and resource Y at $20 per unit. The firm

If the substitution effect outweighs the output effect, an increase in the price of a substitute resource will increase the demand for labor.

Which of the following increases in labor demand is due to a change in the price of a related resource?

(Consider This) According to the Consider This box "Superstars," the high pay of superstars reflects

The demand curve for labor will most likely increase when the price of a

If two inputs are complementary and employed in fixed proportions, an increase in the price of one input will

"Income receivers should be paid in accordance with the value of output each produces." This statement is consistent with the

A winner-takes-all market, like that for entertainers, exhibits huge differences between the top talents and the next tier of artists in all of the following aspects, except

(Consider This) In the market for superstars,

A change in an input price will alter both production costs and the profit-maximizing output. Thus, a decline in the price of capital will reduce production costs, increase the profit-maximizing output, and thereby increase the demand for labor. This describes the

Which of the following is equivalent to the costs that firms incur in acquiring economic resources?

A firm that hires labor in a purely competitive resource market is a

The marginal revenue product curve of a purely competitive seller declines solely because of the law of diminishing returns.

A union representative observed that if the union members' wages were increased by some proportion, the workers would eventually suffer a greater than proportional decline in employment. This statement could best be explained if

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