Deck 16: The Markets for Labor and Other Factors of Production

Question 1

What is the difference between labor's marginal product and marginal revenue product?

A) The marginal product of labor is the increase in output as a result of hiring an additional worker while the marginal revenue product of labor is the increase in profit as a result of hiring an additional worker.
B) The marginal revenue product of labor is the dollar value of hiring an additional worker while the marginal product of labor is the increase in the firm's physical output as a result of hiring an additional worker.
C) The marginal product of labor is the additional labor's contribution to the firm's total output while the marginal revenue product is the additional labor's contribution to the firm's total sales revenue.
D) Labor's marginal product is a measure of labor's productivity while labor's marginal revenue product is a measure of labor's ability to sell the firm's products.

Answer 1

The marginal product of labor is the additional labor's contribution to the firm's total output while the marginal revenue product is the additional labor's contribution to the firm's total sales revenue.

Question 2

Figure 16-1 shows the marginal revenue product for Dale's Hand-Sewn Doilies, a producer of linen doilies.

-Refer to Figure 16-1. If the wage rate is $40, how many workers should Dale hire?

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

Answer 2

3

Question 3

Figure 16-1 shows the marginal revenue product for Dale's Hand-Sewn Doilies, a producer of linen doilies.

-Refer to Figure 16-1. If Dale can sell her doilies at $2 each, what is the marginal product of the 5th worker?

A) $28
B) 28 doilies
C) 14 doilies
D) $56

Answer 3

14 doilies

Question 4

Figure 16-1 shows the marginal revenue product for Dale's Hand-Sewn Doilies, a producer of linen doilies.

-Refer to Figure 16-1. Suppose the market price of doilies rises to $3. What happens to the curve given in the diagram?

A) Nothing, because labor's productivity has not changed.
B) There will be a movement along the curve.
C) The curve shifts to the right.
D) We cannot answer the question without knowing if Dale would want to hire more workers.

Question 5

-Refer to Table 16-1. The marginal product of the fourth unit of labor is

A) 300.
B) 75.
C) 60.
D) 15.

Question 6

-Refer to Table 16-1. If the output price is $3, what is the marginal revenue product of the fifth unit of labor?

A) $1,050
B) $360
C) $210
D) $150

Question 7

-Refer to Table 16-1. Suppose the output price is $3. If the firm represented in the table is maximizing its profit by hiring six workers, what is the wage rate?

A) $120
B) $65
C) $40
D) There is insufficient information to answer the question.

Question 8

-Refer to Table 16-1. Suppose the output price is $3. If the wage rate is $90, what is the profit-maximizing quantity of labor that the firm should hire?

A) 7 units
B) 5 units
C) 4 units
D) 3 units

Question 9

-Refer to Table 16-2. The firm represented in the diagram

A) has market power in the factor market.
B) has market power in the output market.
C) has market power in both the factor and product market.
D) has no market power in the factor or product market.

Question 10

-Refer to Table 16-2. The marginal revenue product of labor from the third unit of labor is

A) $5,460.
B) $1,560.
C) $1,260.
D) $780.

Question 11

-Refer to Table 16-2. The marginal profit from hiring the second unit of labor is

A) $4,200.
B) $1,960.
C) $1,800.
D) $1,450.

Question 12

-Refer to Table 16-2. What is the profit-maximizing quantity of labor that the firm should hire?

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

Question 13

California governor Gavin Newsom signed legislation expanding the state's California College Promise program so first-time, full-time California community college students will now get free tuition for both their first and second years of college. This expanded program will impact approximately 33,000 students. California is one of 12 states that have enacted statewide promise programs offering free college tuition. Included in this list of states are Maryland, Rhode Island, Tennessee, Oregon, and New York, which is the first state to make tuition free for both two-year and four-year colleges.
Source: Kendall Trammell, " California joins a handful of other states that provide community college tuition-free," cnn.com, August 28, 2019.

-Refer to the Article Summary. The article addresses free tuition programs now being offered in several states. The programs could lead to a more skilled and better trained workforce. A more skilled and better trained workforce would

A) cause the market supply curve for labor to shift to the right.
B) cause the market demand curve for labor to shift to the right.
C) not shift the market demand curve for labor.
D) cause both the market demand curve for labor and the market supply curve for labor to shift to the left.

Question 14

Which of the following describes a difference between the marginal product of labor and the marginal revenue product of labor?

A) The marginal product of labor declines as each additional worker is hired because of the law of diminishing returns. The marginal revenue product of labor declines as each additional worker is hired because of diseconomies of scale.
B) The marginal product of labor declines as each additional worker is hired because of the law of diminishing returns. The marginal revenue product increases as each additional worker is hired because of increases in the productivity of labor.
C) The marginal product of labor is inelastic. The marginal revenue product of labor is elastic.
D) The marginal product of labor measures the change in output as additional workers are hired. The marginal revenue product measures the change in revenue as additional workers are hired.

Question 15

Figure 16-2 shows the marginal revenue product for Becca's Baubles, a producer of hand-beaded bracelets.

-Refer to Figure 16-2. If the wage rate is $20, how many workers should Becca hire?

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

Question 16

Figure 16-2 shows the marginal revenue product for Becca's Baubles, a producer of hand-beaded bracelets.

-Refer to Figure 16-2. If Becca can sell her bracelets at $3 each, what is the marginal product of the 4th worker?

A) $36
B) 12 bracelets
C) 36 bracelets
D) $144

Question 17

Figure 16-2 shows the marginal revenue product for Becca's Baubles, a producer of hand-beaded bracelets.

-Refer to Figure 16-2. Suppose the market price of bracelets falls to $2. What happens to the curve given in the diagram?

A) Nothing, because labor's productivity has not changed.
B) There will be a movement along the curve.
C) The curve shifts to the left.
D) We cannot answer the question without knowing if Becca would want to hire more workers.

Question 18

Hotspur Incorporated, a manufacturer of microwave ovens, is a price taker in its input and output markets. The firm hires labor at a constant wage rate of $800 per week and sells microwave ovens at a constant price of $80. Table 16-3 shows the relationship between the quantity of labor it hires and the quantity of microwave ovens it produces. Assume that labor is the only variable input.

-Refer to Table 16-3. What is the amount of revenue added as a result of hiring the fourth worker?

A) $1,200
B) $7,200
C) 15 microwaves
D) 90 microwaves

Question 19

Hotspur Incorporated, a manufacturer of microwave ovens, is a price taker in its input and output markets. The firm hires labor at a constant wage rate of $800 per week and sells microwave ovens at a constant price of $80. Table 16-3 shows the relationship between the quantity of labor it hires and the quantity of microwave ovens it produces. Assume that labor is the only variable input.

-Refer to Table 16-3. What is the amount of profit added as a result of hiring the fourth worker?

A) $7,200
B) $1,200
C) $800
D) $400

Question 20

Hotspur Incorporated, a manufacturer of microwave ovens, is a price taker in its input and output markets. The firm hires labor at a constant wage rate of $800 per week and sells microwave ovens at a constant price of $80. Table 16-3 shows the relationship between the quantity of labor it hires and the quantity of microwave ovens it produces. Assume that labor is the only variable input.

-Refer to Table 16-3. What is Hotspur's profit maximizing quantity of labor?

A) 2 workers
B) 3 workers
C) 5 workers
D) 6 workers

Question 21

Table 16-4 lists data for the production of Apple iPods. Apple is assumed to be a price maker, so to increase its sales of iPods the firm must lower its price. MPL and MRPL refer to the marginal product of labor and the marginal revenue product of labor, respectively.

-Refer to Table 16-4. What are the price and quantity of workers that result in the maximum amount of revenue Apple would earn from selling iPods?

A) $180; 1
B) $140; 2
C) $120; 2
D) $120; 4

Question 22

Table 16-4 lists data for the production of Apple iPods. Apple is assumed to be a price maker, so to increase its sales of iPods the firm must lower its price. MPL and MRPL refer to the marginal product of labor and the marginal revenue product of labor, respectively.

-Refer to Table 16-4. What are the price and quantity of workers that result in the maximum amount of profit Apple would earn from selling iPods?

A) $140; 2
B) $160; 2
C) $140; 3
D) $180; 1

Question 23

Table 16-4 lists data for the production of Apple iPods. Apple is assumed to be a price maker, so to increase its sales of iPods the firm must lower its price. MPL and MRPL refer to the marginal product of labor and the marginal revenue product of labor, respectively.

-Refer to Table 16-4. What are the quantity of labor and marginal revenue product of labor that will maximize the profit Apple would earn from selling iPods?

A) 2; $160
B) 3; $340
C) 2; $680
D) 3; $140

Question 24

-Refer to Table 16-5. Oil Can Harry's, a new automobile service shop, is ready to start hiring. The table above shows the relationship between the number of mechanics the firm hires and the quantity of oil changes it produces.
a. Suppose the price of an oil change is $20. Complete the table by filling in the values for marginal product and marginal revenue product.
b. Oil Can Harry's is an input price-taker. Suppose the wage paid to mechanics is $80 per day. What is the profit-maximizing number of mechanics?
c. Suppose the wage rate rises to $100 per day.
(i) What happens to the firm's demand curve for mechanics?
(ii) What happens to the profit-maximizing quantity of mechanics?
d. Suppose the wage rate is $60 per day and the price of an oil change is now $15.
(i) What happens to the firm's demand curve for mechanics?
(ii) What happens to the profit-maximizing quantity of mechanics?

Question 25

-Refer to Table 16-6. The Hair Cuttery, a new hair salon, is ready to start hiring. The table above shows the relationship between the number of hairdressers the firm hires and the quantity of haircuts it produces.
a. Suppose the price of haircuts is $8. Complete the table by filling in the values for marginal product and marginal revenue product.
b. The Hair Cuttery is an input price-taker. Suppose the wage paid to hairdressers is $40 per day. What is the profit-maximizing number of hairdressers?
c. Suppose the wage rate rises to $60 per day.
(i) What happens to the firm's demand curve for hairdressers?
(ii) What happens to the profit-maximizing quantity of hairdressers?
d. Suppose the wage rate is $40 per day and the price of haircuts is now $10.
(i) What happens to the firm's demand curve for hairdressers?
(ii) What happens to the profit-maximizing quantity of hairdressers?

Question 26

The combined effect (both income and substitution) of a wage increase is that

A) the substitution effect always dominates, leading to more work at a higher wage.
B) the income effect always dominates, leading to less work at a higher wage.
C) if the substitution effect outweighs the income effect, the labor supply curve slopes upward, but if the income effect outweighs the substitution effect, the labor supply curve is backward bending.
D) if the substitution effect outweighs the income effect, the labor supply curve is backward bending, but if the income effect outweighs the substitution effect, the labor supply curve slopes upward.

Question 27

Figure 16-3


-Refer to Figure 16-3. Which of the panels in the diagram best represents an individual's labor supply curve?

A) Panel A
B) Panel B
C) Panel C
D) Panel D

Question 28

Figure 16-3


-Refer to Figure 16-3. Assume Panel B represents the labor supply curve. Which of the following statements about Panel B is true?

A) Panel B describes a situation in which the income effect dominates the substitution effect at low wages (segment i) and again at very high wages (segment iii).
B) Panel B describes a situation in which the income effect dominates the substitution effect at low wages (segment i) and a situation in which the substitution effect dominates the income effect at very high wages (segment iii).
C) Panel B describes a situation in which the substitution effect dominates the income effect at low wages (segment i).
D) Panel B describes a situation in which the income effect dominates the substitution effect at every level of wages (segments i, ii, and iii).

Question 29

Figure 16-3


-Refer to Figure 16-3. Panel D is appropriate when used to represent

A) the quantity of labor demanded by an input price taker.
B) the labor supply curve facing an input price taker.
C) the quantity of labor supplied by someone working a fixed number of hours.
D) the highly-skilled labor market supply curve.

Question 30

Figure 16-3


-Refer to Figure 16-3. In Panel A, at low wages (segment i)

A) the substitution effect outweighs the income effect.
B) the income effect outweighs the substitution effect.
C) the substitution effect offsets the income effect.
D) labor suppliers demand more leisure as wages increase.

Question 31

Figure 16-3


-Refer to Figure 16-3. In Panel A, at high wages (segment iii)

A) the price of leisure is rising relative to the price of labor.
B) the price of leisure is falling relative to the price of labor.
C) laborers work more as wages increase.
D) labor suppliers take more leisure as wages increase.

Question 32

Figure 16-4


-Refer to Figure 16-4. Which of the following is true if the wage rate increases from W1 to W2?

A) The income effect eventually becomes larger than the substitution effect.
B) The substitution effect eventually becomes larger than the income effect.
C) The income effect and the substitution effect are equal.
D) The supply curve is unit elastic.

Question 33

Figure 16-4


-Refer to Figure 16-4. Which of the following is true at W0?

A) The income effect is larger than the substitution effect.
B) The substitution effect is larger than the income effect.
C) The income effect and the substitution effect are equal.
D) The supply curve is negatively sloped.

Question 34

Figure 16-4


-Refer to Figure 16-4. Which of the following is true if the wage rate increases from W0 to W1?

A) The income effect is larger than the substitution effect.
B) The substitution effect is larger than the income effect.
C) The income effect and the substitution effect are equal.
D) The supply curve is unit elastic.

Question 35

Figure 16-4


-Refer to Figure 16-4. Which of the following is true at W2?

A) The income effect is larger than the substitution effect.
B) The substitution effect is larger than the income effect.
C) The income effect and the substitution effect are equal.
D) The supply curve is positively sloped.

Question 36

In 2019, full-time workers aged 25 and over with a college degree earned ________ high school dropouts.

A) roughly the same amount as
B) more than twice as much as
C) 5 times as much as
D) 20 times as much as

Question 37

Research has found that, holding constant students' characteristics, the earnings of people who graduate from highly selective colleges are ________ 30 years after graduation than are the earnings of people who graduated from less selective colleges.

A) no higher
B) fifteen percent higher
C) almost 60 percent higher
D) surprisingly much lower

Question 38

In economic recessions when unemployment in the economy rises, the unemployment rate tends to be lowest for those people

A) who are high school dropouts.
B) who are high school graduates but have no college education.
C) who have some college or an Associate Degree.
D) who have graduated college with a Bachelor's Degree or higher.

Question 39

During economic recessions, the unemployment rate for college graduates tends to decrease.

Question 40

In 2019, the foreign-born population in the United States was almost half of the total U.S. population.

Question 41

Which of the following is an example of a compensating wage differential?

A) Nurse anesthetists are paid less than anesthesiologists (who have medical degrees).
B) Workers in a uranium mine receive higher wages than if they worked in other jobs that require the same level of skills.
C) In the market for lawyers, top graduates from the top programs earn starting salaries that are significantly higher than the starting salaries earned by lower-ranked graduates from the lower-ranked programs.
D) Popular movie stars like Chris Hemsworth command much higher salaries than other talented but lesser-known actors.

Question 42

In academia, professors in some disciplines receive higher salaries than others. For example, professors teaching in business schools receive higher salaries than professors in the English department. Suppose at Unity College, assistant professors in the business school earn $80,000 while assistant professors in the English department earn $50,000. Now suppose the government passes comparable worth legislation that requires academic institutions to pay all faculty the same salaries.

-Refer to Scenario 16-1. Following the passage of comparable worth legislation, Unity College responds by placing salaries for all assistant professors at $80,000. Which of the following is the result of the legislation?

A) The supply of English professors increases; the market for business professors is not affected.
B) The demand for English professors decreases; the market for business professors is not affected.
C) There will be a surplus in the market for English professors and a shortage in the market for business professors.
D) There will be a surplus in the market for English professors and the market for business professors will not be affected.

Question 43

In academia, professors in some disciplines receive higher salaries than others. For example, professors teaching in business schools receive higher salaries than professors in the English department. Suppose at Unity College, assistant professors in the business school earn $80,000 while assistant professors in the English department earn $50,000. Now suppose the government passes comparable worth legislation that requires academic institutions to pay all faculty the same salaries.

-Refer to Scenario 16-1. Following the passage of comparable worth legislation, Unity College responds by placing salaries at $65,000. Which of the following is the result of the legislation?

A) The supply of English professors increases and the supply of business professors decreases.
B) The demand for English professors decreases and the demand for business professors increases.
C) There will be a surplus in the market for English professors and a shortage in the market for business professors.
D) There will be a surplus in the market for English professors and the market for business professors will not be affected.

Question 44

Stephen Strasburg's marginal product as a baseball player would be about the same as a Washington National and a Kansas City Royal. Why would a team in a larger city such as Washington, D.C. be willing to pay a star player such as Stephen Strasburg more than a team in a smaller city such as Kansas City?

A) Teams in larger cities need superstars to attract fans to their games. Teams in smaller cities have no need to attract fans to their games.
B) Major League Baseball teams in larger cities play more home games than Major League Baseball teams in smaller cities. As a result, teams in larger cities earn more revenue from ticket sales that they can use to pay player salaries.
C) A star player such as Strasburg's marginal revenue product is higher for a team in a larger city than it would be for a team in a smaller city.
D) The owners of teams in larger cities are under more pressure from the fans and the local media to pay star players higher salaries than the owners of teams in smaller cities are willing to pay.

Question 45

-Refer to Figure 16-5 to answer the following questions.
a. What is the equilibrium quantity of firefighters hired, and what is the equilibrium wage?
b. What is the equilibrium quantity of paralegals hired, and what is the equilibrium wage?
c. Explain why firefighters might earn a higher weekly wage than paralegals.
d. Suppose that comparable worth legislation is passed, and the government requires that firefighters and paralegals be paid the same wage, $800 per week. Now how many firefighters will be hired and how many paralegals will be hired?

Question 46

Figure 16-6 shows two different compensation schemes for the Vortex Vacuum Cleaner Company.
Under Scheme I, the firm pays a consistent wage of $2,500 per month to all its salespeople for sales up to 20 vacuum cleaners. For sales of 21-30 vacuum cleaners, its salespeople earn $125 per vacuum cleaner, with wages capped at $3,750 per month for sales over 30 vacuum cleaners. If a salesperson has three consecutive months of sales below 20 vacuum cleaners, the person loses his or her job.
Scheme II represents a straight commission, with salespeople earning a commission of $125 per vacuum cleaner sold, with no wage cap.

-Refer to Figure 16-6. Under Scheme I

A) workers compete with each other to see who can sell more than 20 vacuum cleaners in the shortest possible time.
B) workers have no incentive to sell more than 30 vacuum cleaners.
C) workers signal their productivity to the firm by consistently selling above 30 vacuum cleaners.
D) the incentive to increase productivity only occurs for sales of fewer than 20 vacuum cleaners or more than 30 vacuum cleaners.

Question 47

Figure 16-6 shows two different compensation schemes for the Vortex Vacuum Cleaner Company.
Under Scheme I, the firm pays a consistent wage of $2,500 per month to all its salespeople for sales up to 20 vacuum cleaners. For sales of 21-30 vacuum cleaners, its salespeople earn $125 per vacuum cleaner, with wages capped at $3,750 per month for sales over 30 vacuum cleaners. If a salesperson has three consecutive months of sales below 20 vacuum cleaners, the person loses his or her job.
Scheme II represents a straight commission, with salespeople earning a commission of $125 per vacuum cleaner sold, with no wage cap.

-Refer to Figure 16-6. Which of the following statements about Scheme II is false?

A) It is likely to draw highly productive workers who see the opportunity to increase their wages.
B) It could discourage less productive workers and induce them to leave the firm.
C) It allows workers to increase their monthly wage without penalizing those who are content with their monthly wage.
D) It is more risky for senior employees.

Question 48

Figure 16-6 shows two different compensation schemes for the Vortex Vacuum Cleaner Company.
Under Scheme I, the firm pays a consistent wage of $2,500 per month to all its salespeople for sales up to 20 vacuum cleaners. For sales of 21-30 vacuum cleaners, its salespeople earn $125 per vacuum cleaner, with wages capped at $3,750 per month for sales over 30 vacuum cleaners. If a salesperson has three consecutive months of sales below 20 vacuum cleaners, the person loses his or her job.
Scheme II represents a straight commission, with salespeople earning a commission of $125 per vacuum cleaner sold, with no wage cap.

-Refer to Figure 16-6. Salespeople would be indifferent to the two pay schemes if their monthly sales were

A) less than 20 vacuum cleaners.
B) between 20 and 30 vacuum cleaners.
C) between 30 and 45 vacuum cleaners.
D) more than 45 vacuum cleaners.

Question 49

-Refer to Table 16-7. Dante owns a pencil factory and faces the situation shown in the table and the cost of renting a machine is $240 per week.
a. Fill in the blanks in the table and determine the profit-maximizing number of machines for Dante to rent. Explain why renting this number of machines is profit maximizing.
b. Draw Dante's demand curve for capital.