Deck 16: The Demand for Resources

Question 1

The demand for computers is derived from the demand for the capital resources that are used to produce computers.

Answer 1

False

Question 2

To achieve profit maximization, a firm must produce the profit-maximizing output with the least amount of economic resources.

Answer 2

False

Question 3

The marginal product of labor and the marginal revenue product of labor are both measured in the same units, that is, units of output.

Answer 3

False

Question 4

Increased resource productivity will, ceteris paribus, increase a firm's demand for an input.

Question 5

Resource prices are important because they affect resource allocation and income distribution.

Question 6

A competitive firm's marginal revenue product of labor will fall as it employs more labor because the price of labor decreases as more of it is employed.

Question 7

The elasticity of demand for labor varies inversely with the elasticity of demand for the product it is used to produce.

Question 8

If MRP of labor < wage rate, a firm should hire more workers.

Question 9

A firm's demand schedule for a resource is the firm's marginal product schedule for the resource.

Question 10

The marginal revenue product of labor and the marginal resource cost of labor are both measured in the same units, that is, in dollars per unit of labor.

Question 11

If the demand for a product produced by an input decreases, the demand for the input will also decrease.

Question 12

The demand for a resource is a derived demand based on the demand for the product it helps to produce.

Question 13

If the price of labor increases relative to the price of capital, and as a result the quantity of capital hired increases, the output effect of the price increase is greater than the substitution effect.

Question 14

The demand for a resource will shift left if the price of a substitute resource decreases.

Question 15

The marginal revenue product curve for an input is downsloping because of the law of diminishing returns.

Question 16

The marginal revenue product of labor is measured in dollars per unit of labor.

Question 17

The less the elasticity of product demand, the greater the elasticity of resource demand.

Question 18

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

Question 19

If two resources are complementary, an increase in the price of one will increase the demand for the other.

Question 20

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

Question 21

The demand for labor is a derived demand, whereas the demand for capital is not.

Question 22

The marginal productivity theory of income distribution holds that all resources are paid according to their marginal contribution to society's output.

Question 23

The MRP of labor curve is the firm's labor demand curve.

Question 24

The more elastic the demand for a product, the less elastic will be the demand for the resources employed in producing it.

Question 25

Elasticity of resource demand is measured by dividing "percentage change in resource price" by "percentage change in resource quantity."

Question 26

It will be profitable for a firm to hire additional units of any resource up to the point at which its MRP is equal to its MRC.

Question 27

An increase in the price of capital will reduce the demand for labor if capital and labor are complementary resources.

Question 28

The demand for a resource depends on its productivity and the market value of the product it is producing.

Question 29

If MP x > MP y, a firm should hire more x and less y.

Question 30

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

Question 31

Other things equal, the less competitive the market in which a firm sells its product, the less elastic will be its resource demand curve.

Question 32

Marginal revenue product (MRP)is the change in total product (total output)associated with hiring an additional unit of labor.

Question 33

If two resources are complementary, a decrease in the price of one will reduce the demand for the other.

Question 34

Hiring the least-costly combination of resources ensures that profits will be maximized.

Question 35

A firm should reduce its employment of a resource whose marginal resource cost exceeds its marginal revenue product.

Question 36

Producers should hire resources until the total output of each is equal.

Question 37

The marginal productivity theory of resource demand suggests that those resources whose productivity levels are high will end up getting a higher share of the economy's income.

Question 38

Income from inherited wealth and property resources provides strong support for the marginal productivity theory of income distribution.

Question 39

If a firm pays labor $5 and receives an MP L of 10, while paying capital $100 and receiving an MP C of 100, to lower production costs it should hire more labor and less capital.

Question 40

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

Question 41

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?

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

Question 42

Assume Manfred's Shoe Shine Parlor hires labor, its only variable input, under purely competitive conditions. Shoe shines are also sold competitively. How many units of output are produced when 2 workers are employed?

A)4
B)16
C)24
D)10

Question 43

Assume Manfred's Shoe Shine Parlor hires labor, its only variable input, under purely competitive conditions. Shoe shines are also sold competitively. If the wage rate is $11, how many workers will Manfred hire to maximize profits?

A)3
B)4
C)6
D)5

Question 44

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 $4 per unit, and the wage rate is $30 per worker. The marginal revenue product of the third worker is

A)$5
B)$148
C)$-10
D)$20

Question 45

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

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

Question 46

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?

A)$6.50
B)$3
C)$8
D)$7

Question 47

Refer to the table, which gives data for a firm that is hiring labor in a purely competitive market. If the wage rate is $4.5, how many workers will the firm choose to employ?

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

Question 48

Refer to the given table. If the firm is hiring workers under purely competitive conditions at a wage rate of $10, it will employ

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

Question 49

If one worker can pick $30 worth of grapes and two workers together can pick $70 worth of grapes, the

A)marginal revenue product of each worker is $35.
B)marginal revenue product of the first worker is $40.
C)marginal revenue product of the second worker is $40.
D)data given are insufficient to determine the marginal revenue product of either worker.

Question 50

Refer to the given table. If the firm is hiring workers under purely competitive conditions at a wage rate of $22, it will employ

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

Question 51

Refer to the given table. This firm is

A)selling its product in a purely competitive market.
B)selling its product in an imperfectly competitive market.
C)hiring workers in a purely competitive market.
D)hiring workers in an imperfectly competitive market.

Question 52

Harry owns a barbershop and charges $15 per haircut. By hiring one barber at $12 per hour, the shop can provide 18 haircuts per eight-hour day. By hiring a second barber at the same wage rate, the shop can now provide a total of 39 haircuts per day. The MP of the second barber is

A)$315.
B)$270.
C)21 haircuts.
D)39 haircuts.

Question 53

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

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 54

Assume Manfred's Shoe Shine Parlor hires labor, its only variable input, under purely competitive conditions. Shoe shines are also sold competitively. If the wage rate is $11 and Manfred's only fixed input is capital, the total cost of which is $40, then what will be his economic profit?

A)102
B)56
C)62
D)47

Question 55

Assume that a restaurant is hiring labor in an amount such that the MRC of the last worker is $14 and her MRP is $10. On the basis of this information, we can say that

A)profits will be increased by hiring additional workers.
B)profits will be increased by hiring fewer workers.
C)marginal revenue product must exceed average revenue product.
D)the restaurant is maximizing profits.

Question 56

Assume Manfred's Shoe Shine Parlor hires labor, its only variable input, under purely competitive conditions. Shoe shines are also sold competitively. What is the marginal product of the fifth worker?

A)5 units
B)3 units
C)4 units
D)2 units

Question 57

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. The MRP of the second barber is

A)18 haircuts.
B)$108.
C)42 haircuts.
D)$126.

Question 58

Assume labor is the only variable input and that an additional input of labor increases total output from 72 to 80 units. If the product sells for $6 per unit in a purely competitive market, the MRP of this additional worker is

A)$6.
B)$8.
C)$48.
D)$80.

Question 59

Refer to the given table. Which of the following best represents the labor demand schedule for this firm?

A)
B)
C)
D)

Question 60

Hiring the profit-maximizing combination of resources ensures that production costs will be minimized.

Question 61

What will the elasticity of resource demand be if unit wages rise by 5 percent and the number of employed workers falls by 9 percent?

A)3.00
B)2.36
C)0.56
D)1.80

Question 62

Assume that the coefficient of elasticity of product demand is 0.9 in industry A and is 2.8 in industry B. Other things equal, labor demand will be

A)more elastic in industry A than in B.
B)relatively elastic in both industries A and B.
C)more elastic in industry B than in A.
D)relatively inelastic in both industries A and B.

Question 63

Suppose that a union successfully negotiated a 14 percent wage increase and the quantity of labor demanded decreased by 10 percent. Given a fixed labor demand curve, we can conclude that

A)the labor demand curve is upsloping.
B)labor demand is elastic.
C)labor demand is inelastic.
D)the coefficient of elasticity of labor demand is equal to 1.

Question 64

All firms have to incur costs because of

A)the resources they use.
B)buyers they sell to.
C)the profits they earn.
D)revenues they receive.

Question 65

Assume a firm purchases resources a and b under purely competitive conditions and combines these resources to produce X. Product X is sold in a purely competitive market. The MPs of a and b are 12 and 6, respectively, and the prices of a and b are $6 and $3, respectively. If profit-maximizing equilibrium exists, the price of X will be

A)$1.
B)$2.
C)$0.50.
D)$5.

Question 66

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 $50 and $90, respectively. Resource X can be hired at $100 per unit and resource Y at $40 per unit. The firm

A)should hire less of X and more of Y.
B)should hire more of both X and Y.
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 67

Suppose that the labor cost to total cost ratio in industry A is 14 percent, while in industry B it is 68 percent. Other things equal, labor demand will be

A)more elastic in industry B than in A.
B)relatively inelastic in both industries A and B.
C)more elastic in industry A than in B.
D)relatively elastic in both industries A and B.

Question 68

Resource pricing is important because

A)resource prices are a major determinant of money incomes.
B)resource prices allocate scarce resources among alternative uses.
C)resource prices, along with resource productivity, are important to firms in minimizing their costs.
D)of all these reasons.

Question 69

Refer to the given data. For the $16 to $14 range of wage rates, labor demand is

A)perfectly elastic.
B)elastic.
C)unit elastic.
D)inelastic.

Question 70

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?

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 71

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 $5 and $8 respectively, what is the least costly combination of resources for the firm to employ in producing 238 units of output?

A)3 of a and 7 of b
B)7 of a and 5 of b
C)6 of a and 4 of b
D)4 of a and 6 of b

Question 72

Refer to the given data. For the $12 to $10 range of wage rates, labor demand is

A)perfectly elastic.
B)inelastic.
C)unit elastic.
D)elastic.

Question 73

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 $3.50 per unit, and the wage rate is $17 per worker. What is the farmer's profit-maximizing output?

A)40
B)32
C)20
D)37

Question 74

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, when the firm hires the profit-maximizing combination of resources, its economic profit will be

A)$140.
B)$222.
C)$117.
D)$82.

Question 75

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 $3 per unit, and the wage rate is $13 per worker. How many workers should the farmer hire?

A)$1
B)$2
C)$4
D)$3

Question 76

Refer to the given data. Suppose that the union that provides labor to firms in this market successfully negotiates an increase in the wage rate from $12 to $16. As a result of the wage increase, firms will hire

A)fewer workers, and the total paid out for wages will increase.
B)fewer workers, and the total paid out for wages will decline.
C)fewer workers, and the total paid out for wages will remain unchanged.
D)more capital, if capital and labor are used in fixed proportions in production.

Question 77

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

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

Question 78

To firms, resource prices are a major part of

A)revenues.
B)total product.
C)costs.
D)profits.

Question 79

Suppose a firm is hiring resources l and m under purely competitive conditions to produce product Y, which sells for $2 in a purely competitive market. The prices of l and m are $10 and $4, respectively. In equilibrium, the MPs of l and m, respectively, are

A)1 and 1.
B)2 and 5.
C)10 and 4.
D)5 and 2.

Question 80

Refer to the given data. Suppose that the union that provides labor to firms in this market successfully negotiates an increase in the wage rate from $16 to$19. As a result of the wage increase, firms will hire

A)fewer workers, and the total paid out for wages will increase.
B)fewer workers, and the total paid out for wages will decline.
C)fewer workers, and the total paid out for wages will remain unchanged.
D)more capital, if capital and labor are used in fixed proportions in production.