Deck 13: How Factor Markets Work

Question 1

Consider the following production and cost schedule for a firm. $$\begin{array}{l}\begin{array} { | l | l | l | l | } \hline \begin{array} { l } \text { Total Number of } \\\text { Units of the } \\\text { Factor }\end{array} & \begin{array} { l } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { l } \text { Price per Unit } \\\text { of Output }\end{array} & \begin{array} { l } \text { Total Cost } \\\text { of Production }\end{array} \\\hline 2 & 12 & \$ 10 & \$ 50 \\\hline 3 & 20 & \$ 9 & \$ 55 \\\hline 4 & 26 & \$ 8 & \$ 60 \\\hline 5 & 30 & \$ 7 & \$ 65 \\\hline 6 & 32 & \$ 6 & \$ 70 \\\hline 7 & 32 & \$ 5 & \$ 75 \\\hline\end{array}\\\text { TABLE 13- } 3\end{array}$$

-Refer to Table 13- 3. The increase in total revenue generated by hiring the 5th unit of the factor of production is

A) - $2.00.
B) $11.00.
C) $2.00.
D) - $11.00.
E) $7.50.

Answer 1

$2.00.

Question 2

If at a particular wage rate in a competitive labour market the quantity demanded of labour is less than quantity supplied of labour, then

A) the demand curve for labour will shift to the right.
B) there will be a shortage of labour, thereby increasing the equilibrium wage rate.
C) the supply curve for labour will shift to the right.
D) some workers will begin to accept lower wages and induce employers to hire more workers.
E) a black market for labour will form, with firms offering workers very high wages.

Answer 2

D

Question 3

The diagram below shows the MRP curve for a firm producing high school math textbooks. The factor of production being considered here is hours of labour. FIGURE 13- 2
Refer to Figure 13- 2. Suppose this firm initially has the marginal revenue product curve MRP1. One reason that the curve could shift to MRP3 is

A) an increase in the wage rate.
B) an increase in the marginal product of labour.
C) an increase in demand for the firm's output, math textbooks.
D) a decrease in the market price of math textbooks.
E) a decrease in the supply of labour.

Answer 3

D

Question 4

Suppose that the last unit of a factor of production employed has a marginal physical product of 12. The factor's price is $8, and the product's competitive market price is $6. This factor's marginal revenue product is

A) $96.
B) $72.
C) $6.
D) $36.
E) $48.

Question 5

The marginal revenue product curve for a monopolist would be its marginal product curve because .

A) the same as; the MRP curve always has the same shape as the MP curve.
B) steeper than; its product's price increases as output increases.
C) steeper than; its MR decreases as output increases.
D) flatter than; it must pay a higher wage to labour.
E) flatter than; its product's price decreases as output increases.

Question 6

Consider the following production and cost schedule for a firm. $$\begin{array}{l}\begin{array} { | l | l | l | l | } \hline \begin{array} { l } \text { Total Number of } \\\text { Units of the } \\\text { Factor }\end{array} & \begin{array} { l } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { l } \text { Price per Unit } \\\text { of Output }\end{array} & \begin{array} { l } \text { Total Cost } \\\text { of Production }\end{array} \\\hline 2 & 12 & \$ 10 & \$ 50 \\\hline 3 & 20 & \$ 9 & \$ 55 \\\hline 4 & 26 & \$ 8 & \$ 60 \\\hline 5 & 30 & \$ 7 & \$ 65 \\\hline 6 & 32 & \$ 6 & \$ 70 \\\hline 7 & 32 & \$ 5 & \$ 75 \\\hline\end{array}\\\text { TABLE 13- } 3\end{array}$$

-Refer to Table 13- 3. The marginal physical product of the 4th unit of the factor of production is
.

A) 6
B) 8
C) 30
D) 26
E) 4

Question 7

Median family income (pre- tax) in Canada in 2006 was closest to

A) $70 000.
B) $40 000.
C) $80 000.
D) $50 000.
E) $60 000.

Question 8

Suppose the government decides, in the interest of "fairness", to impose a policy prohibiting factor- price differentials. The likely result would be

A) a horizontal factor supply curve.
B) a decrease in net factor demands.
C) a shortage of factors in uses with low net advantage.
D) equilibrium in factor markets.
E) an increase in factor mobility.

Question 9

Consider the following production and cost schedule for a firm. $$\begin{array}{l}\begin{array} { | l | l | l | l | } \hline \begin{array} { l } \text { Total Number of } \\\text { Units of the } \\\text { Factor }\end{array} & \begin{array} { l } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { l } \text { Price per Unit } \\\text { of Output }\end{array} & \begin{array} { l } \text { Total Cost } \\\text { of Production }\end{array} \\\hline 2 & 12 & \$ 10 & \$ 50 \\\hline 3 & 20 & \$ 9 & \$ 55 \\\hline 4 & 26 & \$ 8 & \$ 60 \\\hline 5 & 30 & \$ 7 & \$ 65 \\\hline 6 & 32 & \$ 6 & \$ 70 \\\hline 7 & 32 & \$ 5 & \$ 75 \\\hline\end{array}\\\text { TABLE 13- } 3\end{array}$$

-Refer to Table 13- 3. The total revenue obtained if the 5th unit of the factor of production is hired is

A) $192.
B) $210.
C) $160.
D) $180.
E) $202.

Question 10

The demand and supply curves shown below apply to a competitive market for a factor in the production of widgets. FIGURE 13- 5
Refer to Figure 13- 5. This factor market is in equilibrium at point B. If a technological change occurs in the production of widgets that allows for increased production from each factor, then

A) economic rents to the initial 40 units of the factor will decrease.
B) total factor earnings will rise and economic rent to the 40th unit will be zero.
C) total factor earnings will decrease and economic rent to the initial 40 units will increase.
D) equilibrium will move toward point D and the factor price will rise.
E) equilibrium will move toward point C and economic rent to the initial 40 units will increase.

Question 11

Suppose the following conditions existed in the Canadian labour market:
1) All labour is mobile and possesses the same skills.
2) Non- monetary advantages are the same across industries and occupations.
3) The demand conditions for labour are the same across industries. In this situation, we expect wage rates to

A) differ because of the desirability of the location of the job.
B) be the same in all industries.
C) be the same in most industries.
D) have equilibrium differentials.
E) be higher in some industries than in others.

Question 12

The table below shows the total production for varying numbers of hours worked producing yo- yos. The firm sells its product and hires its workers in competitive markets. $$\begin{array}{l}\begin{array} { | l | l | l | l | } \hline \begin{array} { l } \text { Number of } \\\text { Hours Worked }\end{array} & \begin{array} { l } \text { Number of } \\\text { Yo- Yos } \\\text { Produced }\end{array} & \begin{array} { l } \text { Wage Rate } \\\text { per Hour } ( \$ )\end{array} & \begin{array} { l } \text { Price of Yo- Yos } \\( \$ )\end{array} \\\hline 10 & 60 & 10 & 5 \\\hline 11 & 70 & 10 & 5 \\\hline 12 & 78 & 10 & 5 \\\hline 13 & 84 & 10 & 5 \\\hline 14 & 88 & 10 & 5 \\\hline 15 & 90 & 10 & 5 \\\hline\end{array}\\\text { TABLE 13- } 4\end{array}$$

-Refer to Table 13- 4. What is the MRP for the 13th hour worked?

A) $5
B) $30
C) $78
D) $84
E) $10

Question 13

Steve Nash is a highly paid professional basketball player in the National Basketball Association. From the perspective of the whole NBA, Steve Nash's economic rent would be , while from the perspective of his individual team it would be .

A) close to his whole salary; very small
B) zero; close to his whole salary
C) very small; very large
D) zero; impossible to calculate
E) very large; close to his whole salary

Question 14

FIGURE 13- 1
Refer to Figure 13- 1. On the Lorenz curve shown in the diagram,

A) the richest 20 percent of families earn over 60 percent of total income.
B) the richest 20 percent of families earn almost 40 percent of total income.
C) the functional distribution of income is shown.
D) the poorest 20 percent of families earn almost 90 percent of total income.
E) perfect equality of income distribution occurs.

Question 15

The marginal revenue product of labour is the change in the value of the firm's output resulting from

A) an increase in the marginal physical product of labour.
B) a change in the wage rate paid to labour.
C) hiring one more unit of labour input.
D) producing one more unit of output.
E) a change in the product's price.

Question 16

Consider the following table for a firm. $$\begin{array}{l}\begin{array} { | l | l | } \hline \begin{array} { l } \text { Total Number of } \\\text { Units of the } \\\text { Factor }\end{array} & \begin{array} { l } \text { Total Number of } \\\text { Units of Output }\end{array} \\\hline 2 & 100 \\\hline 3 & 110 \\\hline 4 & 128 \\\hline 5 & 148 \\\hline 6 & 162 \\\hline 7 & 170 \\\hline 8 & 166 \\\hline\end{array}\\\text { TABLE 13- } 2\end{array}$$

-Refer to Table 13- 2. This firm begins to experience diminishing marginal productivity when it hires the unit of the factor.

A) 3rd
B) 4th
C) 5th
D) 6th
E) 7th

Question 17

If the supply curve for a factor is perfectly elastic, the payments to the factor are

A) partly economic rent and partly transfer earnings.
B) wholly economic rent.
C) wholly transfer earnings.
D) an unnecessary tax on the factor.
E) neither economic rent nor transfer earnings.

Question 18

A demand for a factor of production is said to be "derived" because the factor's demand depends

A) on the demand for the good or services it helps to make.
B) heavily on public choice.
C) entirely on corporate advertising.
D) entirely on the cost of the factor.
E) heavily on government policy.

Question 19

Other things being equal, if it becomes more difficult to substitute capital for labour in the production of cell phones, the demand curve for labour in that industry

A) will become more elastic.
B) will shift parallel to the left.
C) will become more inelastic.
D) will shift parallel to the right.
E) will remain unchanged.

Question 20

If a firm is a perfect competitor in its product market, the marginal physical product of a factor multiplied by the product's price equals

A) marginal revenue.
B) total revenue.
C) marginal revenue product.
D) marginal cost.
E) marginal profit.

Question 21

The demand and supply curves shown below apply to a competitive market for a factor in the production of widgets. FIGURE 13- 5
Refer to Figure 13- 5. This factor market is in equilibrium at point B. In equilibrium, the 30th unit of the factor is being paid transfer earnings of _ and economic rent of _ .

A) $16; $2
B) $6; $2
C) $210; $1
D) $120; - $2
E) $7; $1

Question 22

Consider labour hired for $18 per hour. If the last hour of labour hired produces 8 units of output which sells for $10 per unit, labour should be hired in this situation since the wage is
MRP.

A) more; less than
B) less; greater than
C) more; greater than
D) no; equal to
E) less; less than

Question 23

Consider labour that is hired for $18 per hour. If the last hour hired produces 8 units of output which sells for $2 per unit, that labour- hour adds _ to the firm's profit and so labour should be hired.

A) $16; less
B) - $2; less
C) $16; more
D) - $128; more
E) $0; no

Question 24

The table below shows the total production for varying numbers of hours worked producing yo- yos. The firm sells its product and hires its workers in competitive markets. $$\begin{array}{l}\begin{array} { | l | l | l | l | } \hline \begin{array} { l } \text { Number of } \\\text { Hours Worked }\end{array} & \begin{array} { l } \text { Number of } \\\text { Yo- Yos } \\\text { Produced }\end{array} & \begin{array} { l } \text { Wage Rate } \\\text { per Hour } ( \$ )\end{array} & \begin{array} { l } \text { Price of Yo- Yos } \\( \$ )\end{array} \\\hline 10 & 60 & 10 & 5 \\\hline 11 & 70 & 10 & 5 \\\hline 12 & 78 & 10 & 5 \\\hline 13 & 84 & 10 & 5 \\\hline 14 & 88 & 10 & 5 \\\hline 15 & 90 & 10 & 5 \\\hline\end{array}\\\text { TABLE 13- } 4\end{array}$$

-Refer to Table 13- 4. How many worker- hours should this profit- maximizing firm hire?

A) 15
B) 14
C) 13
D) 12
E) 11

Question 25

In a perfectly competitive labour market, a profit- maximizing firm will employ labour until the

A) MRP = the product's price.
B) MPP = MRP.
C) wage = the product's price.
D) wage = MRP.
E) wage = MPP.

Question 26

The diagram below shows the MRP curve for a firm producing high school math textbooks. The factor of production being considered here is hours of labour. FIGURE 13- 2
Refer to Figure 13- 2. This firm's MRP curve is the firm's

A) market demand curve for textbooks.
B) total product curve for labour.
C) marginal product of labour curve.
D) derived demand for textbooks.
E) demand curve for labour.

Question 27

Non- monetary considerations tend to be most important in the allocation of

A) capital.
B) raw materials.
C) natural resources.
D) land.
E) labour.

Question 28

John Smith plays baseball for $500 000 per year, but if he were not a baseball player, his next best alternative would be to earn $35 000 per year as a sales representative. By playing baseball, Smith is earning economic rent of

A) $535 000.
B) $500 000.
C) $465 000.
D) $35 000.
E) zero.

Question 29

Suppose all Canadians earned equal incomes. In this case, Canada's Lorenz curve would be

A) non- existent.
B) above the diagonal line.
C) below the diagonal line.
D) coincident with the horizontal axis.
E) the diagonal line.

Question 30

Which of the following would be least likely to earn economic rent?

A) an owner of land located on Yonge Street, near downtown Toronto
B) a university professor who loves every bit of his job
C) Celine Dion
D) Jim Murray, an auto- plant worker in Oshawa, Ontario
E) Robert Bateman, famous wildlife artist

Question 31

The table below shows the total production for varying numbers of hours worked producing yo- yos. The firm sells its product and hires its workers in competitive markets. $$\begin{array}{l}\begin{array} { | l | l | l | l | } \hline \begin{array} { l } \text { Number of } \\\text { Hours Worked }\end{array} & \begin{array} { l } \text { Number of } \\\text { Yo- Yos } \\\text { Produced }\end{array} & \begin{array} { l } \text { Wage Rate } \\\text { per Hour } ( \$ )\end{array} & \begin{array} { l } \text { Price of Yo- Yos } \\( \$ )\end{array} \\\hline 10 & 60 & 10 & 5 \\\hline 11 & 70 & 10 & 5 \\\hline 12 & 78 & 10 & 5 \\\hline 13 & 84 & 10 & 5 \\\hline 14 & 88 & 10 & 5 \\\hline 15 & 90 & 10 & 5 \\\hline\end{array}\\\text { TABLE 13- } 4\end{array}$$

-Refer to Table 13- 4. What is the marginal cost of the variable factor employed by this firm?

A) $0
B) $5
C) $20
D) $30
E) $10

Question 32

In a competitive labour market, an increase in the demand for labour might be due to an increase in the

A) supply of the other factors.
B) demand for the product that labour produces.
C) wage rate.
D) supply of labour.
E) supply of the product that labour produces.

Question 33

The elasticity of supply of computer- game programmers will generally be greater if the amount supplied is to

A) a particular industry in the long run.
B) a particular industry in the short run.
C) the whole economy in the short run.
D) a specific firm.
E) the whole economy in the long run.

Question 34

All of the following are examples of equilibrium factor- price differentials, EXCEPT:

A) higher pay to a dentist than to a dental hygienist.
B) the wages earned by labour of varying ability.
C) the prices of two pieces of land, one with a good supply of water and one without.
D) the difference in average wages in Toronto and Dryden, Ontario.
E) an income differential that induces increased rates of entry into the higher paid professions.

Question 35

13 Consider the following production and cost schedule for a firm. $$\begin{array}{l}\begin{array} { | l | l | l | l | } \hline \begin{array} { l } \text { Total Number of } \\\text { Units of the } \\\text { Factor }\end{array} & \begin{array} { l } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { l } \text { Price per Unit } \\\text { of Output }\end{array} & \begin{array} { l } \text { Total Cost } \\\text { of Production }\end{array} \\\hline 10 & 30 & \$ 10 & \$ 100 \\\hline 11 & 44 & \$ 10 & \$ 110 \\\hline 12 & 64 & \$ 10 & \$ 120 \\\hline 13 & 78 & \$ 10 & \$ 130 \\\hline 14 & 84 & \$ 10 & \$ 140 \\\hline 15 & 86 & \$ 10 & \$ 150 \\\hline\end{array}\\\text { TABLE 13- } 1\end{array}$$

-Refer to Table 13- 1. The marginal revenue product of the 14th unit of the factor is

A) - $60.
B) $60.
C) $140.
D) $700.
E) $840.

Question 36

The diagram below shows the MRP curve for a firm producing high school math textbooks. The factor of production being considered here is hours of labour. FIGURE 13- 2
Refer to Figure 13- 2. Suppose this profit- maximizing firm is facing MRP1 and a wage rate of $12 per hour. Now suppose there is, simultaneously, an increase in demand for math textbooks (such that MRP shifts to MRP2), and an increase in the wage rate to $16 per hour. The firm should

A) employ 20 fewer units of labour.
B) employ 40 fewer units of labour
C) employ the same number of units of labour.
D) employ 20 more units of labour.
E) employ 40 more units of labour.

Question 37

Suppose that experienced oil- field workers are observed to earn a higher wage in Alberta than in Newfoundland. Economists would likely call this

A) equalisation of net advantage.
B) an acquired difference.
C) an intrinsic difference.
D) an equilibrium differential.
E) a temporary factor- price differential.

Question 38

A Lorenz curve shows the

A) level of a country's income relative to its productive capacity.
B) level of a country's income relative to its foreign trade.
C) ratio of workers' income to capitalists' income.
D) degree of inequality across households in the distribution of income.
E) functional distribution of income.

Question 39

The term "economic rent" refers to

A) economic profit.
B) transfer earnings plus opportunity cost.
C) factor payments in excess of transfer earnings.
D) a payment for use of land.
E) the opportunity cost of land.

Question 40

Suppose Harrison Ford makes 2 movies per year and earns $10 million per movie. Suppose that if he weren't making movies his next best alternative would be to earn $500,000 per year endorsing shampoo. By making movies, Harrison Ford

A) is earning economic rent of $19,500,000 per year.
B) is not earning economic rent.
C) is earning economic rent of $20,000,000 per year.
D) is earning economic rent of $500,000 per year.
E) is earning economic rent of $20,500,000 per year.

Question 41

Consider the perfectly competitive labour market for video- game designers. Which of the following will shift the demand curve for these workers to the right?
1) an increase in the equilibrium wage rate for video- game designers;
2) a decrease in the market price of video games;
3) new software that speeds the design process.

A) 2 and 3
B) 1 and 2
C) 2 only
D) 3 only
E) 1 only

Question 42

The three diagrams below each show a supply curve for oil tankers over a relatively short period of time. FIGURE 13- 3
Refer to Figure 13- 3. Consider the supply of oil tankers to an individual Canadian firm, the North American shipping industry, and the world shipping industry. Which diagram best shows the supply of oil tankers that is relevant to an individual Canadian firm?

A) diagram 1
B) diagram 2
C) diagram 3
D) diagrams 2 or 3
E) diagrams 1 or 2

Question 43

The aggregate quantity of labour supplied will generally rise when there is an increase in
1) Immigration;
2) labour- force participation rates;
3) the retirement age.

A) 1, 2, and 3
B) 1 only
C) 1 and 3
D) 2 and 3
E) 1 and 2

Question 44

Consider the following production and cost schedule for a firm. $$\begin{array}{l}\begin{array} { | l | l | l | l | } \hline \begin{array} { l } \text { Total Number of } \\\text { Units of the } \\\text { Factor }\end{array} & \begin{array} { l } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { l } \text { Price per Unit } \\\text { of Output }\end{array} & \begin{array} { l } \text { Total Cost } \\\text { of Production }\end{array} \\\hline 2 & 12 & \$ 10 & \$ 50 \\\hline 3 & 20 & \$ 9 & \$ 55 \\\hline 4 & 26 & \$ 8 & \$ 60 \\\hline 5 & 30 & \$ 7 & \$ 65 \\\hline 6 & 32 & \$ 6 & \$ 70 \\\hline 7 & 32 & \$ 5 & \$ 75 \\\hline\end{array}\\\text { TABLE 13- } 3\end{array}$$

-Refer to Table 13- 3. The total revenue obtained if the 7th unit of the factor of production is hired is

A) $180.
B) $160.
C) $210.
D) $202.
E) $192.

Question 45

The demand for a factor will be less elastic if

A) marginal physical product decreases slowly as more of the factor is used.
B) the demand for the good being produced is elastic.
C) there is a high degree of substitutability between factors.
D) that factor determines a small percentage of total cost.
E) the supply of the factor is elastic.

Question 46

Consider the following production and cost schedule for a firm. $$\begin{array}{l}\begin{array} { | l | l | l | l | } \hline \begin{array} { l } \text { Total Number of } \\\text { Units of the } \\\text { Factor }\end{array} & \begin{array} { l } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { l } \text { Price per Unit } \\\text { of Output }\end{array} & \begin{array} { l } \text { Total Cost } \\\text { of Production }\end{array} \\\hline 10 & 30 & \$ 10 & \$ 100 \\\hline 11 & 44 & \$ 10 & \$ 110 \\\hline 12 & 64 & \$ 10 & \$ 120 \\\hline 13 & 78 & \$ 10 & \$ 130 \\\hline 14 & 84 & \$ 10 & \$ 140 \\\hline 15 & 86 & \$ 10 & \$ 150 \\\hline\end{array}\\\text { TABLE 13- } 1\end{array}$$

-Refer to Table 13- 1. The total revenue of the output produced by 15 units of the factor is .

A) $860
B) $150
C) $640
D) $780
E) $1440.

Question 47

Consider the following production and cost schedule for a firm. $$\begin{array}{l}\begin{array} { | l | l | l | l | } \hline \begin{array} { l } \text { Total Number of } \\\text { Units of the } \\\text { Factor }\end{array} & \begin{array} { l } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { l } \text { Price per Unit } \\\text { of Output }\end{array} & \begin{array} { l } \text { Total Cost } \\\text { of Production }\end{array} \\\hline 10 & 30 & \$ 10 & \$ 100 \\\hline 11 & 44 & \$ 10 & \$ 110 \\\hline 12 & 64 & \$ 10 & \$ 120 \\\hline 13 & 78 & \$ 10 & \$ 130 \\\hline 14 & 84 & \$ 10 & \$ 140 \\\hline 15 & 86 & \$ 10 & \$ 150 \\\hline\end{array}\\\text { TABLE 13- } 1\end{array}$$

-Refer to Table 13- 1. The marginal revenue product of the 15th unit of the factor is

A) - $20.
B) $20.
C) $60.
D) $150.
E) $820.

Question 48

Consider labour that is hired for $18 per hour. If the last hour of labour hired produces 8 units of output which sells for $10 per unit, that labour- hour adds _ to the firm's profit and so
Labour should be hired.

A) $62; more
B) $64; more
C) $62; less
D) $0; no
E) - $64; less

Question 49

Choose the statement that best describes the difference between "economic rent" and other factor payments.

A) Economic rent is unearned income of the factor whereas other payments are earned.
B) Economic rent is the sum of all factor payments.
C) There is no difference between economic rent and other factor payments.
D) Economic rent is not a cost to the firm but other payments are.
E) A reduction in economic rent will not reduce the availability of the factor whereas reducing other payments of factors will reduce their availability.

Question 50

Consider the following demand and supply curves in factor markets. FIGURE 13- 4
Refer to Figure 13- 4. The panel that best illustrates the supply of a factor to a specific firm in the economy is

A) 1.
B) 2.
C) 3.
D) 4.
E) 1 or 4.

Question 51

Which of the following is the best example of a derived demand?

A) A decrease in the price of TVs will increase the demand for DVD players.
B) An increase in demand for cars will increase the demand for auto workers.
C) An increase in the price of butter increases the demand for margarine.
D) A decrease in interest rates increases the demand for housing.
E) An increase in the wage rate causes firms to substitute capital for labour.

Question 52

FIGURE 13- 1
Refer to Figure 13- 1. The diagonal line in the diagram

A) has no real purpose.
B) shows where the Lorenz curve would be if there were complete income equality.
C) illustrates the functional distribution of income.
D) shows the actual distribution of income.
E) shows that 100 percent of families earn 100 percent of the income.

Question 53

The "size distribution of income" refers to the distribution of income

A) among different households without reference to the source of the income.
B) between capitalists and landowners.
C) between capitalists and workers.
D) among different households with reference to the source of the income.
E) to a particular factor of production in different time periods.

Question 54

Consider labour that is hired for $18 per hour. If the last hour hired produces 8 units of output which sells for $2 per unit, labour should be hired in this situation since the wage is
MRP.

A) more; greater than
B) less; less than
C) no; equal to
D) less; greater than
E) more; less than

Question 55

If a technological change makes it easier to substitute capital for labour, the demand curve for labour

A) shifts parallel to the left.
B) is not affected.
C) becomes more inelastic.
D) becomes more elastic.
E) shifts parallel to the right.

Question 56

Consider a small firm that is producing winter coats. It can lease an additional sewing machine for one month for $2400. With this additional machine, the firm can produce an additional 4 coats during that time period that it sells for $550 each. Hiring the marginal machine adds to the firm's profit and so it should _ the machine.

A) - $200; not lease
B) $2400; lease
C) $200; lease
D) $0; be indifferent as to whether to lease
E) - $2400; not lease

Question 57

Equilibrium factor- price differentials

A) may be caused by differences in the intrinsic qualities of factors.
B) will be eliminated when the allocation of resources is in long- run equilibrium.
C) are unrelated to acquired differences in factors.
D) tend to be self- eliminating.
E) are unrelated to differences in non- monetary benefits.

Question 58

A perfectly competitive firm will continue to increase production until the marginal cost of the variable factor is

A) equal to the marginal revenue product of the factor.
B) equal to the marginal revenue of the firm's output.
C) less than the marginal revenue of the firm's output.
D) greater than the marginal revenue of the firm's output.
E) equal to zero.

Question 59

Suppose a cook at a diamond mining camp in Canada's North earns a much higher wage than a cook with similar training and experience at an office building in Halifax. Economists would likely call this

A) an acquired difference.
B) an intrinsic difference.
C) an equilibrium differential.
D) a compensating differential.
E) a temporary factor- price differential.

Question 60

Consider the following demand and supply curves in factor markets. FIGURE 13- 4
Refer to Figure 13- 4. The total amount paid to the workers is "economic rent" in diagram

A) 1.
B) 2.
C) 3.
D) 4.
E) 1 or 4.

Question 61

The demand and supply curves shown below apply to a competitive market for a factor in the production of widgets. FIGURE 13- 5
Refer to Figure 13- 5. This factor market is in equilibrium at point B. In equilibrium, the 20th unit of the factor is being paid transfer earnings of _ and economic rent of _ .

A) $320; $80
B) $6; $2
C) $16; $2
D) $120; - $2
E) $120; $40

Question 62

If a given factor of production is highly mobile across alternative uses, the factor's supply is

A) immobile at the industry level.
B) perfectly inelastic.
C) highly price inelastic.
D) highly price elastic.
E) irrelevant to its earnings.

Question 63

In a Lorenz curve diagram, the size of the area between the Lorenz curve and the diagonal line represents

A) complete income equality.
B) the percentage of income received by the top 5 percent of families.
C) the percentage of income received by the bottom 20 percent of families.
D) the dollar incomes of the bottom 40 percent of families.
E) the degree of inequality in the distribution of income.

Question 64

FIGURE 13- 1
Refer to Figure 13- 1. Which point shows that 100 percent of families earn 100 percent of the income?

A) A
B) B
C) C
D) D
E) E

Question 65

Consider the following production and cost schedule for a firm. $$\begin{array}{l}\begin{array} { | l | l | l | l | } \hline \begin{array} { l } \text { Total Number of } \\\text { Units of the } \\\text { Factor }\end{array} & \begin{array} { l } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { l } \text { Price per Unit } \\\text { of Output }\end{array} & \begin{array} { l } \text { Total Cost } \\\text { of Production }\end{array} \\\hline 10 & 30 & \$ 10 & \$ 100 \\\hline 11 & 44 & \$ 10 & \$ 110 \\\hline 12 & 64 & \$ 10 & \$ 120 \\\hline 13 & 78 & \$ 10 & \$ 130 \\\hline 14 & 84 & \$ 10 & \$ 140 \\\hline 15 & 86 & \$ 10 & \$ 150 \\\hline\end{array}\\\text { TABLE 13- } 1\end{array}$$

-Refer to Table 13- 1. How many units of this factor of production would the profit- maximizing firm hire if the price of each unit of the factor was $30?

A) 13
B) 15
C) 12
D) 14
E) It is not possible to determine with the data given.

Question 66

FIGURE 13- 1
Refer to Figure 13- 1. Which point shows that the bottom 60 percent of families earn just under 40 percent of total income?

A) A
B) B
C) C
D) D
E) E

Question 67

Consider the following production and cost schedule for a firm. $$\begin{array}{l}\begin{array} { | l | l | l | l | } \hline \begin{array} { l } \text { Total Number of } \\\text { Units of the } \\\text { Factor }\end{array} & \begin{array} { l } \text { Total Number of } \\\text { Units of Output }\end{array} & \begin{array} { l } \text { Price per Unit } \\\text { of Output }\end{array} & \begin{array} { l } \text { Total Cost } \\\text { of Production }\end{array} \\\hline 2 & 12 & \$ 10 & \$ 50 \\\hline 3 & 20 & \$ 9 & \$ 55 \\\hline 4 & 26 & \$ 8 & \$ 60 \\\hline 5 & 30 & \$ 7 & \$ 65 \\\hline 6 & 32 & \$ 6 & \$ 70 \\\hline 7 & 32 & \$ 5 & \$ 75 \\\hline\end{array}\\\text { TABLE 13- } 3\end{array}$$

-Refer to Table 13- 3. The rise in total revenue generated by hiring the 4th unit of the factor of production is

A) $28.00.
B) $7.50.
C) $- 11.00.
D) $3.67.
E) $2.00.

Question 68

A temporary factor- price differential is one which

A) will reflect a permanent state of disequilibrium.
B) derives from intrinsic differences in the factors themselves.
C) will hamper the reallocation of resources from declining to growing industries.
D) is seldom self- eliminating.
E) will tend to be eliminated in the long run.

Question 69

The three diagrams below each show a supply curve for oil tankers over a relatively short period of time. FIGURE 13- 3
Refer to Figure 13- 3. Consider the supply of oil tankers to an individual Canadian firm, the North American shipping industry, and the world shipping industry. Which diagram best shows the supply of oil tankers that is relevant to the world shipping industry?

A) diagram 1
B) diagram 2
C) diagram 3
D) diagrams 2 or 3
E) diagrams 1 or 2

Question 70

Consider the following table for a firm. $$\begin{array}{l}\begin{array} { | l | l | } \hline \begin{array} { l } \text { Total Number of } \\\text { Units of the } \\\text { Factor }\end{array} & \begin{array} { l } \text { Total Number of } \\\text { Units of Output }\end{array} \\\hline 2 & 100 \\\hline 3 & 110 \\\hline 4 & 128 \\\hline 5 & 148 \\\hline 6 & 162 \\\hline 7 & 170 \\\hline 8 & 166 \\\hline\end{array}\\\text { TABLE 13- } 2\end{array}$$

-Refer to Table 13- 2. Suppose this firm is a perfect competitor and faces a given price of the product equal to $10 per unit. The marginal revenue product of the 3rd unit of the factor is .

A) $30
B) $110
C) $100
D) $1000
E) $1100

Question 71

Which of the following is the best definition of the marginal revenue product (MRP) of a factor of production?

A) the change in revenue caused by the sale of an additional unit of output
B) the average product of the factor multiplied by the price of the output
C) the increase in output resulting from the use of an additional unit of the factor multiplied by the cost of that factor
D) the change in revenue generated by the sale of the product produced by an additional unit of input
E) marginal revenue multiplied by total product

Question 72

If a technological change makes it harder to substitute capital for labour, the demand curve for labour

A) becomes more elastic.
B) shifts parallel to the left.
C) is not affected.
D) becomes less elastic.
E) shifts parallel to the right.

Question 73

If small changes in incentives can induce a factor to shift between alternative uses, we say that the factor is

A) flighty.
B) efficient.
C) inelastic.
D) declining.
E) mobile.

Question 74

The diagram below shows the MRP curve for a firm producing high school math textbooks. The factor of production being considered here is hours of labour. FIGURE 13- 2
Refer to Figure 13- 2. Suppose this firm has the marginal revenue product curve MRP1. At a wage rate of $12, the profit- maximizing firm will hire units of labour.

A) 160
B) 140
C) 120
D) 180
E) 100

Question 75

According to the hypothesis of "equal net advantage",

A) owners of factors will use their factors in a way that results in the largest financial return.
B) owners of factors will use them in a way that results in the largest combined monetary and non- monetary rewards.
C) demand curves for a factor in any particular use are not likely to shift
D) supply curves for a factor in any particular use are not likely to shift.
E) in equilibrium, owners of identical factors of production will receive different net returns for different uses of the factors.

Question 76

The theory of equal net advantage is a theory concerning

A) the production process.
B) economic versus accounting profit.
C) the supply of factors.
D) the demand for factors.
E) the marginal product of the factors.

Question 77

If the cost of a particular factor of production accounts for a large percentage of the total cost of producing some good, we can expect the demand for this factor of production to

A) be relatively elastic.
B) have an elasticity equal to zero.
C) be perfectly inelastic.
D) have an elasticity equal to one.
E) be relatively inelastic.

Question 78

The demand and supply curves shown below apply to a competitive market for a factor in the production of widgets. FIGURE 13- 5
Refer to Figure 13- 5. This factor market is initially in equilibrium at point B. Assume that there is a decrease in the demand for widgets and a new equilibrium is established at point A. Which of the following statements about point A is true?

A) Total economic rent is $120.
B) Total transfer earnings are $120.
C) The marginal revenue product of the 20th unit of the factor is $6 and economic rent of the 20th unit of the factor is $0.
D) The marginal revenue product of the 20th unit of the factor is $120 and economic rent of the 20th unit of the factor is $6.
E) Transfer earnings for the 20th unit of the factor are $6 and economic rent of the 20th unit of the factor is $2.

Question 79

The table below shows the total production for varying numbers of hours worked producing yo- yos. The firm sells its product and hires its workers in competitive markets. $$\begin{array}{l}\begin{array} { | l | l | l | l | } \hline \begin{array} { l } \text { Number of } \\\text { Hours Worked }\end{array} & \begin{array} { l } \text { Number of } \\\text { Yo- Yos } \\\text { Produced }\end{array} & \begin{array} { l } \text { Wage Rate } \\\text { per Hour } ( \$ )\end{array} & \begin{array} { l } \text { Price of Yo- Yos } \\( \$ )\end{array} \\\hline 10 & 60 & 10 & 5 \\\hline 11 & 70 & 10 & 5 \\\hline 12 & 78 & 10 & 5 \\\hline 13 & 84 & 10 & 5 \\\hline 14 & 88 & 10 & 5 \\\hline 15 & 90 & 10 & 5 \\\hline\end{array}\\\text { TABLE 13- } 4\end{array}$$

-Refer to Table 13- 4. Which of the following statements best describes the situation of this firm when it is employing 12 hours of labour? The 12th hour of labour hired

A) adds $5 to revenue, but costs $10 to hire, so this firm should hire less labour.
B) adds $30 to revenue, but only costs $10 to hire, so this firm should hire more labour.
C) adds $8 to revenue, but costs $10 to hire, so this firm should hire less labour.
D) adds $10 to revenue and costs $10 to hire, so this firm is maximizing its profit at 12 hours of labour.
E) adds $40 to revenue, but only costs $10 to hire, so this firm should hire more labour.

Question 80

If the supply curve for a factor is perfectly inelastic, the payments to the factor are

A) neither economic rent nor transfer earnings.
B) wholly economic rent.
C) an unnecessary tax on the factor.
D) partly economic rent and partly transfer earnings.
E) wholly transfer earnings.