Deck 18: The Markets for the Factors of Production

Question 1

In the United States economy,which of the following factors of production is considered to be the most important in terms of the magnitude of income earned by that factor of production?

A)land
B)labor
C)profit
D)capital

Answer 1

B

Question 2

Economists refer to the inputs that firms use to produce goods and services as

A)derived factors.
B)derived resources.
C)factors of production.
D)instruments of revenue.

Answer 2

C

Question 3

What causes the labor demand curve to shift? (i) changes in productivity
(ii) changes in wages
(iii) changes in output prices

A)(i) and (ii)
B)(ii) and (iii)
C)(i) and (iii)
D)All of the above are correct.

Answer 3

C

Question 4

For a competitive,profit-maximizing firm,the labor demand curve is the same as the

A)marginal cost curve.
B)value of marginal product curve.
C)production function.
D)profit function.

Question 5

Competitive firms decide how much output to sell by producing output until the price of the good equals

A)marginal product.
B)the value of marginal product.
C)marginal cost.
D)marginal profit.

Question 6

Labor markets are different from most other markets because labor demand is

A)represented by a vertical line on a supply-demand diagram.
B)represented by an upward-sloping line on a supply-demand diagram.
C)such an elusive concept.
D)derived.

Question 7

When a firm is a profit maximizer

A)it is driven to produce as much of its product as possible.
B)it will measure its success by the number of employees it has.
C)its revenue will always be maximized as well.
D)it does not care directly about the number of workers it hires.

Question 8

For a competitive firm that finds it worthwhile to operate rather than shut down,profit maximization requires that

A)output price = marginal cost.
B)wage = value of marginal product of labor.
C)wage/marginal product of labor = P.
D)All of the above are correct.

Question 9

Factor-market analysis could not be complete without some characterization of

A)product-market demand.
B)the marginal productivities of the different factors.
C)market prices for final goods and services.
D)All of the above are correct.

Question 10

If the price of airline tickets falls,what will happen to the demand curve for flight attendants?

A)It will shift to the right.
B)It will shift to the left.
C)The direction of the shift is ambiguous.
D)It will remain unchanged.

Question 11

If consumers demand more genetically engineered foods,then the value of genetic engineers' marginal product of labor will

A)rise.
B)fall.
C)remain unchanged.
D)rise or fall; either is possible.

Question 12

Because a firm's demand for a factor of production is derived from its decision to supply a good in the market,it is called a

A)differentiated demand.
B)secondary demand.
C)derived demand.
D)hybrid demand-supply.

Question 13

Competitive firms hire workers until the additional benefit they receive from the last worker hired is equal to (i) the additional cost of that worker.
(ii) the wage paid to that worker.
(iii) the marginal product of that worker.

A)(i) only
B)(iii) only
C)(i) and (ii)
D)(ii) and (iii)

Question 14

The basic tools of supply and demand apply to

A)markets for goods and services and to markets for labor services.
B)markets for goods and services but not to markets for labor services.
C)markets for goods and services but not to markets for factors of production.
D)all markets except those in which demand is derived demand.

Question 15

How much of the income in the United States is earned by workers in the form of wages and fringe benefits?

A)more than 90 percent
B)about 75 percent
C)about 50 percent
D)less than 75 percent

Question 16

The term "factor market" applies to the market for

A)labor.
B)capital.
C)land.
D)All of the above are correct.

Question 17

Which of the following best illustrates the concept of "derived demand?"

A)An increase in the wages of auto workers will lead to an increase in the demand for robots in automobile factories.
B)An automobile producer's decision to supply more cars will lead to an increase in the demand for automobile production workers.
C)An automobile producer's decision to supply more minivans results from a decrease in the demand for station wagons.
D)An increase in the price of gasoline will lead to an increase in the demand for small cars.

Question 18

Most of the total income earned in the U.S.economy is ultimately paid to households in the form of

A)profit.
B)rent.
C)interest.
D)wages.

Question 19

The factors of production are best defined as the

A)output produced from raw materials.
B)inputs used to produce goods and services.
C)wages paid to the workforce.
D)goods and services sold in the market.

Question 20

Factor markets are different from product markets in an important way because

A)equilibrium is the exception, and not the rule, in factor markets.
B)the demand for a factor of production is a derived demand.
C)the demand for a factor of production is likely to be upward sloping, in violation of the law of demand.
D)All of the above are correct.

Question 21

Labor-saving technology causes which of the following? (i) The marginal productivity of labor increases.
(ii) The marginal productivity of labor decreases.
(iii) Labor demand shifts to the right.
(iv) Labor demand shifts to the left.

A)(i) only
B)(ii) only
C)(i) and (iii)
D)(ii) and (iv)

Question 22

A Luddite would be expected to fear

A)labor-saving technologies.
B)labor-augmenting technologies.
C)supply-shifting technologies.
D)the Chairman of the Federal Reserve.

Question 23

Along the horizontal axis of the production function we typically measure

A)revenue.
B)the marginal product of the input.
C)the quantity of input.
D)the quantity of output.

Question 24

Charles owns one of the many bakeries in New York City.Which of the following events will lead to a decrease in Charles's demand for the services of bakers?

A)Hollywood glamorization of a new movie about a baker leads hundreds of high-school students in New York City to apply for a job at Dan's.
B)The price of baked goods falls.
C)The local bakers form a union.
D)All of the above are correct.

Question 25

For a competitive,profit-maximizing firm,the demand curve for labor will shift in response to a change in the

A)wage rate.
B)quantity of labor demanded.
C)price of the product that the firm sells.
D)All of the above are correct.

Question 26

Aurora Custom Cabinets produces and sells custom kitchen cabinets.The firm has determined that if it hires 10 workers,it can produce 4 sets of cabinets per day.If it hires 11 workers,it can produce 4.2 sets of cabinets per day.It sells each set of cabinets for $2,000,and it pays each of its workers $200 per day.

A)For the 11th worker, the value of the marginal product of labor is $500.
B)For the 11th worker, the marginal revenue product is $400.
C)The firm is maximizing its profit.
D)If the firm is employing 11 workers, then its profit would increase if it cut back to 10 workers.

Question 27

Suppose that a new invention increases the marginal productivity of labor,shifting labor demand to the right.Such an invention would be an example of

A)labor-saving technology.
B)labor-augmenting technology.
C)Luddite technology.
D)supply-shifting technology.

Question 28

Scenario 18-1
Gertrude Kelp owns three boats that participate in commercial fishing for fresh Pacific salmon off the coast of Alaska. As part of her business she hires a captain and several crew members for each boat. In the market for fresh Pacific salmon, there are thousands of firms like Gertrude's. While Gertrude usually catches a significant number of fish each year, her contribution to the entire harvest of salmon is negligible relative to the size of the market.
Refer to Scenario 18-1.Based on the given information,it is likely that Gertrude's firm has

A)some influence over the wages paid to crew members but no influence over the price of salmon.
B)some influence over the price of salmon but no influence over the wages paid to crew members.
C)some influence over both the price of salmon and the wages paid to crew members.
D)no influence over either the price of salmon or the wages paid to crew members.

Question 29

Which of the following events could increase the demand for labor?

A)a decrease in output price
B)a decrease in the amount of capital available for workers to use
C)an increase in the marginal productivity of workers
D)All of the above are correct.

Question 30

When we focus on the firm as a supplier of a good or a service,we assume that the firm is a profit maximizer.When we focus on the firm as a demander of labor,we assume that the firm's objective is to

A)minimize wages.
B)minimize variable costs.
C)maximize the number of workers hired.
D)maximize profit.

Question 31

A sandwich shop hires workers to make sandwiches and sell them to customers.If the firm is competitive in both the market for sandwiches and in the market for sandwich-makers,then it has

A)some control over both the price of sandwiches and the wage it pays to its workers.
B)no control over the price of sandwiches but some control over the wage it pays to its workers.
C)some control over the price of sandwiches but no control over the wage it pays to its workers.
D)no control over either the price of sandwiches or the wage it pays to its workers.

Question 32

The term Luddite is used to describe

A)a person who readily adopts the latest technological advances.
B)a person who fears computers.
C)a person who opposes technological advances.
D)any mythical historical figure.

Question 33

A competitive firm sells its output for $45 per unit.The marginal product of the 30th worker is 4 units of output per day;the marginal product of the 31st worker is 3 units of output per day.The firm pays its workers a wage of $150 per day.

A)For the 31st worker, the marginal profit is $135.
B)For the 30th worker, the value of the marginal product of labor is $600.
C)For the 30th worker, the marginal profit is $180.
D)None of the above is correct.

Question 34

Suppose that workers who sort outgoing mail for a company use rubber bands to group mail.If there were an increase in the supply of rubber bands,which of the following would happen in the market for labor?

A)Demand would decrease.
B)Demand would increase.
C)Supply would decrease.
D)Supply would increase.

Question 35

Along the vertical axis of the production function we typically measure

A)revenue.
B)the marginal product of the input.
C)the quantity of input.
D)the quantity of output.

Question 36

Dan owns one of the many bakeries in New York City.Which of the following events will lead to an increase in Dan's demand for the services of bakers? (i) The price of muffins increases.(Muffins are Dan's specialty.)
(ii) Dan adds three new ovens to the kitchen area to help the bakers work faster.
(iii) Local bakers form a union to protect themselves from low wages.

A)(i) and (ii)
B)(ii) and (iii)
C)(i) and (iii)
D)All of the above are correct.

Question 37

Labor-augmenting technology causes which of the following? (i) The marginal productivity of labor increases.
(ii) The marginal productivity of labor decreases.
(iii) Labor demand shifts to the right.
(iv) Labor demand shifts to the left.

A)(i) only
B)(ii) only
C)(i) and (iii)
D)(ii) and (iv)

Question 38

Which of the following events could decrease the demand for labor?

A)an increase in migrant workers
B)an increase in the marginal productivity of workers
C)a decrease in demand for the final product produced by labor
D)a decrease in the labor supply

Question 39

Suppose that a new invention decreases the marginal productivity of labor,shifting labor demand to the left.Such an invention would be an example of

A)labor-saving technology.
B)labor-augmenting technology.
C)Luddite technology.
D)supply-shifting technology.

Question 40

Omega Custom Cabinets produces and sells custom bathroom vanities.The firm has determined that if it hires 10 workers,it can produce 20 vanities per week.If it hires 11 workers,it can produce 22 vanities per week.It sells each vanity for $800,and it pays each of its workers $1,000 per week.

A)For the 11th worker, the marginal profit is $600.
B)For the 11th worker, the marginal revenue product is $2,000.
C)The firm is maximizing its profit.
D)If the firm is employing 11 workers, then its profit would increase if it cut back to 10 workers.

Question 41

Scenario 18-1
Gertrude Kelp owns three boats that participate in commercial fishing for fresh Pacific salmon off the coast of Alaska. As part of her business she hires a captain and several crew members for each boat. In the market for fresh Pacific salmon, there are thousands of firms like Gertrude's. While Gertrude usually catches a significant number of fish each year, her contribution to the entire harvest of salmon is negligible relative to the size of the market.
Refer to Scenario 18-1.If Gertrude is a price taker in the labor market,she decides

A)the price for which she will sell the fish she catches.
B)how many crew members she will hire.
C)the wages that she will pay to her crew members.
D)All of the above are correct.

Question 42

The following table shows the number of calculators that can be assembled per week by various numbers of workers.If the price per calculator in a perfectly competitive product market is $20,how many workers would the firm employ if the weekly wage rate is $1000?

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

Question 43

Value of marginal product is defined as the additional

A)output a firm would receive after hiring one more factor of production.
B)cost of hiring one more factor of production.
C)revenue earned from selling one more unit of product.
D)revenue earned from hiring one more factor of production.

Question 44

Scenario 18-1
Gertrude Kelp owns three boats that participate in commercial fishing for fresh Pacific salmon off the coast of Alaska. As part of her business she hires a captain and several crew members for each boat. In the market for fresh Pacific salmon, there are thousands of firms like Gertrude's. While Gertrude usually catches a significant number of fish each year, her contribution to the entire harvest of salmon is negligible relative to the size of the market.
Refer to Scenario 18-1.Labor-market theory assumes that Gertrude's demand for crew members and her supply of fresh Pacific salmon result from her

A)intrinsic desire to hire crew members.
B)primary goal of maximizing profit.
C)altruistic motives to provide fresh salmon to consumers.
D)desire to strike a balance between environmental concerns and maximum profit.

Question 45

Suppose that eight workers can manufacture 70 radios per day,and nine workers can manufacture 90 radios per day.If radios can be sold for $10 each,the value of marginal product of the ninth worker is

A)20 radios.
B)90 radios.
C)$200.
D)$900.

Question 46

Bill is trying to convince the owner of a pizza shop to hire him.He argues that he could help the shop sell an additional five pizzas per day at the market price of $8 each.If the facts are not in dispute,but the owner does not hire him,then

A)the wage rate must be less than $40 per day.
B)hiring Bill would involve a negative marginal product.
C)the wage rate must be more than $40 per day.
D)the wage rate must be less than $8 per day.

Question 47

Scenario 18-1
Gertrude Kelp owns three boats that participate in commercial fishing for fresh Pacific salmon off the coast of Alaska. As part of her business she hires a captain and several crew members for each boat. In the market for fresh Pacific salmon, there are thousands of firms like Gertrude's. While Gertrude usually catches a significant number of fish each year, her contribution to the entire harvest of salmon is negligible relative to the size of the market.
Refer to Scenario 18-1.If the price of fresh Pacific salmon were to decrease significantly,it is most likely that Gertrude would

A)reduce her demand for crew members.
B)hire more boats.
C)become a seller in at least one factor market.
D)hire more crew members.

Question 48

Table 18-1

Refer to Table 18-1.This table describes the number of baseballs a manufacturer can produce per day with different quantities of labor.Each baseball sells for $5 in a competitive market.For which level of employment is the marginal product of labor greatest?

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

Question 49

Table 18-1

Refer to Table 18-1.This table describes the number of baseballs a manufacturer can produce per day with different quantities of labor.Each baseball sells for $5 in a competitive market.What is the total revenue per day that the firm will earn if it employs five workers?

A)$500.
B)$300.
C)$2200.
D)$2500.

Question 50

Scenario 18-1
Gertrude Kelp owns three boats that participate in commercial fishing for fresh Pacific salmon off the coast of Alaska. As part of her business she hires a captain and several crew members for each boat. In the market for fresh Pacific salmon, there are thousands of firms like Gertrude's. While Gertrude usually catches a significant number of fish each year, her contribution to the entire harvest of salmon is negligible relative to the size of the market.
Refer to Scenario 18-1.If Gertrude is a competitor in both the fresh Pacific salmon market and in the market for crew members,she is called a price

A)taker in the salmon market and a wage setter in the crew market.
B)taker in the crew market and a price setter in the salmon market.
C)taker in both markets.
D)setter in both markets.

Question 51

Table 18-2
Consider the following daily production data for Davis Golf Balls, Inc. Davis Golf Balls, Inc. sells golf balls for 50 cents each and pays the workers a wage of $30 a day.

Refer to Table 18-2.What is the value of the marginal product of the second worker?

A)$50
B)$62.50
C)$75
D)$150

Question 52

Scenario 18-1
Gertrude Kelp owns three boats that participate in commercial fishing for fresh Pacific salmon off the coast of Alaska. As part of her business she hires a captain and several crew members for each boat. In the market for fresh Pacific salmon, there are thousands of firms like Gertrude's. While Gertrude usually catches a significant number of fish each year, her contribution to the entire harvest of salmon is negligible relative to the size of the market.
Refer to Scenario 18-1.When Gertrude participates in the labor market to hire crew members for her boats,she is most likely considered a

A)demander of labor services.
B)supplier of labor services.
C)demander of capital.
D)supplier of capital.

Question 53

The marginal product of labor is

A)the increase in the amount of output from an additional unit of labor.
B)the total amount of output divided by the total units of labor.
C)total revenue minus total cost.
D)also called the marginal profit.

Question 54

Scenario 18-1
Gertrude Kelp owns three boats that participate in commercial fishing for fresh Pacific salmon off the coast of Alaska. As part of her business she hires a captain and several crew members for each boat. In the market for fresh Pacific salmon, there are thousands of firms like Gertrude's. While Gertrude usually catches a significant number of fish each year, her contribution to the entire harvest of salmon is negligible relative to the size of the market.
Refer to Scenario 18-1.In the fresh Pacific salmon product market,Gertrude has some control over

A)the price she charges for her fresh salmon.
B)the quantity of fresh salmon that she catches and supplies to the market.
C)the competitive environment of the market.
D)All of the above are correct.

Question 55

The marginal product of labor is defined as the change in

A)output per additional unit of revenue.
B)output per additional unit of labor.
C)revenue per additional unit of labor.
D)revenue per additional unit of output.

Question 56

Table 18-1

Refer to Table 18-1.This table describes the number of baseballs a manufacturer can produce per day with different quantities of labor.Each baseball sells for $5 in a competitive market.If the firm is maximizing the marginal product of labor,what is the firm's marginal revenue product?

A)140 baseballs.
B)$300.
C)$400.
D)$700.

Question 57

Table 18-2
Consider the following daily production data for Davis Golf Balls, Inc. Davis Golf Balls, Inc. sells golf balls for 50 cents each and pays the workers a wage of $30 a day.

Refer to Table 18-2.What is the third worker's marginal product of labor?

A)75 golf balls
B)100 golf balls
C)125 golf balls
D)150 golf balls

Question 58

Table 18-2
Consider the following daily production data for Davis Golf Balls, Inc. Davis Golf Balls, Inc. sells golf balls for 50 cents each and pays the workers a wage of $30 a day.

Refer to Table 18-2.What is the fourth worker's marginal product of labor?

A)50 golf balls
B)75 golf balls
C)100 golf balls
D)125 golf balls

Question 59

Table 18-2
Consider the following daily production data for Davis Golf Balls, Inc. Davis Golf Balls, Inc. sells golf balls for 50 cents each and pays the workers a wage of $30 a day.

Refer to Table 18-2.What is the sixth worker's marginal product of labor?

A)37.5 golf balls
B)50 golf balls
C)75 golf balls
D)100 golf balls

Question 60

When labor is the only input a firm uses,the marginal cost of a unit of output can be defined as

A)marginal revenue multiplied by wage.
B)marginal product of labor multiplied by wage.
C)wage divided by marginal product of labor.
D)marginal product of labor divided by wage.

Question 61

For maximum profit,a firm hires labor up to the point at which the wage equals (i) the value of the marginal product of labor.
(ii) the marginal cost of an additional unit of output.
(iii) output price multiplied by the marginal product of labor.

A)(i) and (ii)
B)(i) and (iii)
C)(ii) and (iii)
D)All of the above are correct.

Question 62

Table 18-2
Consider the following daily production data for Davis Golf Balls, Inc. Davis Golf Balls, Inc. sells golf balls for 50 cents each and pays the workers a wage of $30 a day.

Refer to Table 18-2.What is the value of the marginal product of the first worker?

A)$25
B)$50
C)$75
D)$100

Question 63

Table 18-3

Refer to Table 18-3.What is the fourth worker's contribution to total revenue?

A)$-100
B)$40
C)$400
D)$500

Question 64

Table 18-2
Consider the following daily production data for Davis Golf Balls, Inc. Davis Golf Balls, Inc. sells golf balls for 50 cents each and pays the workers a wage of $30 a day.

Refer to Table 18-2.The marginal product of labor begins to diminish with the addition of which worker?

A)the 1st worker
B)the 2nd worker
C)the 3rd worker
D)the 4th worker

Question 65

Which of the following statements is correct?

A)The value of the marginal product curve is the labor demand curve for competitive, profit-maximizing firms.
B)A competitive, profit-maximizing firm hires workers up to the point where the value of the marginal product of labor equals the wage.
C)By hiring labor up to the point where the value of the marginal product of labor equals the wage, the firm is producing where price equals marginal cost.
D)All of the above are correct.

Question 66

Table 18-3

Refer to Table 18-3.The fact that the production function exhibits diminishing marginal productivity implies that

A)total production decreases beyond a certain level of output.
B)labor markets are not always competitive.
C)the additions to total output get smaller as more workers are hired.
D)marginal profit is negative.

Question 67

Table 18-3

Refer to Table 18-3.What is the marginal product of the fourth worker?

A)30
B)40
C)100
D)400

Question 68

Table 18-3

Refer to Table 18-3.What is the marginal profit of the fourth worker?

A)$400
B)$100
C)$0
D)$-100

Question 69

Table 18-2
Consider the following daily production data for Davis Golf Balls, Inc. Davis Golf Balls, Inc. sells golf balls for 50 cents each and pays the workers a wage of $30 a day.

Refer to Table 18-2.Suppose that there is a technological advance that allows Davis Golf Balls,Inc.employees to produce more golf balls than they could before.Because of this change,

A)the firm's demand for labor shifts right.
B)the firm's demand for labor shifts left.
C)the firm's supply of labor shifts right.
D)the firm's supply of labor shifts left.

Question 70

Table 18-3

Refer to Table 18-3.If the firm hires two workers,the two workers together produce

A)80 units.
B)100 units.
C)180 units.
D)200 units.

Question 71

Table 18-2
Consider the following daily production data for Davis Golf Balls, Inc. Davis Golf Balls, Inc. sells golf balls for 50 cents each and pays the workers a wage of $30 a day.

Refer to Table 18-2.What is the marginal profit of the sixth worker?

A)-$10
B)-$5
C)$7.50
D)$25

Question 72

Table 18-3

Refer to Table 18-3.To maximize its profit,how many workers will the firm hire?

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

Question 73

Table 18-3

Refer to Table 18-3.To maximize its profit,the firm will hire workers as long as the value of the marginal product of labor equals or exceeds

A)$100.
B)$200.
C)$400.
D)$500.

Question 74

Table 18-3

Refer to Table 18-3.The fact that the marginal product falls as the number of workers increases exemplifies a property called

A)diminishing marginal product.
B)utility maximization.
C)supply and demand.
D)labor theory.

Question 75

Table 18-2
Consider the following daily production data for Davis Golf Balls, Inc. Davis Golf Balls, Inc. sells golf balls for 50 cents each and pays the workers a wage of $30 a day.

Refer to 18-2.What is the value of the marginal product of the fifth worker?

A)$7.50
B)$25
C)$37.50
D)$75

Question 76

Table 18-2
Consider the following daily production data for Davis Golf Balls, Inc. Davis Golf Balls, Inc. sells golf balls for 50 cents each and pays the workers a wage of $30 a day.

Refer to Table 18-2.What is the marginal profit of the fourth worker?

A)$7.50
B)$20
C)$50
D)$100

Question 77

Table 18-2
Consider the following daily production data for Davis Golf Balls, Inc. Davis Golf Balls, Inc. sells golf balls for 50 cents each and pays the workers a wage of $30 a day.

Refer to Table 18-2.Assume that Davis Golf Balls,Inc.is a competitive,profit-maximizing firm.If the market price of golf balls increases from 50 cents to 60 cents,how many workers would the firm then hire?

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

Question 78

Table 18-3

Refer to Table 18-3.It is apparent from this table that increasing marginal product

A)occurs only after the first worker is hired.
B)occurs only after the second worker is hired.
C)occurs only after the third worker is hired.
D)never occurs.

Question 79

Table 18-2
Consider the following daily production data for Davis Golf Balls, Inc. Davis Golf Balls, Inc. sells golf balls for 50 cents each and pays the workers a wage of $30 a day.

Refer to Table 18-2.Assuming Davis Golf Balls,Inc.is a competitive,profit-maximizing firm,how many workers will the firm hire?

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

Question 80

Table 18-3

Refer to Table 18-3.What is the market price of the final good?

A)$5
B)$6
C)$8
D)$10