Deck 3: The Demand for Labor

Question 1

When a firm moves to a higher isoquant,

A) the utility level of the firm's managers increases.
B) the firm now produces more output.
C) the firm now produces less output.
D) the firm produces the same output, but at a higher price.

Answer 1

B

Question 2

Table 3.1

Referring to Table 3.1, diminishing marginal returns begins with the ________ employee.

A) first
B) second
C) third
D) sixth

Answer 2

C

Question 3

Most of a payroll tax is eventually paid by

A) employers if the supply of labor curve is very inelastic.
B) employers if the labor demand curve is very elastic.
C) workers if the supply of labor curve is very inelastic.
D) workers if the supply of labor curve is very elastic.

Answer 3

C

Question 4

In the long run a profit-maximizing firm will select capital and labor so that

A) the marginal product of labor equals the marginal product of capital.
B) the wage divided by the marginal product of labor equals the rental cost of a unit of capital divided by the marginal product of capital.
C) labor equals capital.
D) the wage equals the rental cost of a unit of capital.

Question 5

Employee subsidies will be most effective at raising the effective wage of the poor when

A) demand for labor is elastic.
B) supply for labor is inelastic.
C) both A and B
D) neither A nor B

Question 6

Table 3.1

Referring to Table 3.1, if wages are $50.00 per day and pots sell for $20.00 each, how many potters will the firm hire?

A) two
B) three
C) four
D) five

Question 7

If the firm hires to a point where the marginal expense of labor is greater than the marginal revenue product of labor, then

A) profits could be increased by increasing employment.
B) profits could be increased by reducing employment.
C) profits are maximized.
D) total cost must be greater than total revenue.

Question 8

For two substitutes in production, if the scale effect dominates

A) then the inputs are gross complements.
B) then the inputs are gross substitutes.
C) then the inputs could be either gross complements or gross substitutes.
D) then the inputs can not be used at the same time.

Question 9

A competitive industry hires 1000 workers. The 1000th worker adds $500 a week to their employer's revenue. If a monopoly took over the industry, then the 1000th worker would likely

A) add less than $500 a week to their employer's revenue.
B) still add $500 a week to their employer's revenue.
C) add more than $500 a week to their employer's revenue.
D) uncertain; it depends on the shape of the demand curve for output.

Question 10

If two inputs are complements in production

A) then the inputs can not be used at the same time.
B) then the inputs can be either gross complements or gross substitutes.
C) then the inputs are gross complements.
D) then the inputs are gross substitutes.

Question 11

Diminishing marginal returns occur because

A) hiring more employees means that each has less capital with which to work.
B) it is more difficult to manage a firm as the size of the workforce and capital stock both grow.
C) the best employees will always be hired first.
D) hiring more employees means that they will subdivide tasks and therefore become more efficient.

Question 12

An employer who is a monopolist in the product market will probably

A) hire more employees than a perfect competitor would.
B) hire fewer employees than a perfect competitor would.
C) hire the same number of employees as a perfect competitor, due to competitiveness in the labor market.
D) hire fewer workers at a higher wage than a perfect competitor would.

Question 13

If two inputs are substitutes in production and an increase in the price of one input shifts the demand curve for the other input to the left then

A) the scale effect is greater than the substitution effect and the two are gross complements.
B) the scale effect is less than the substitution effect and the two are gross complements.
C) the scale effect is greater than the substitution effect and the two are gross substitutes.
D) the scale effect is less than the substitution effect and the two are gross substitutes.

Question 14

When deciding the salary of a sports star,

A) the team must consider how much money the sports star should earn.
B) the team must consider how much the sports star will cause revenues to increase.
C) the team estimates the sports star's marginal product; because this is a guess, sports stars are generally underpaid.
D) the team will hire the sports star if doing so will increase the team's revenues.

Question 15

Declining marginal product of labor

A) is needed if competitive firms are to stop hiring workers at some point.
B) allows firms to make the most profit.
C) mainly exists because workers get tired after many hours of work.
D) implies workers get more productive as more of them are hired.

Question 16

The marginal product of labor tells us

A) which employee is the most productive.
B) the average output produced by each employee.
C) the additional output produced by the last employee hired.
D) how much money the firm can make from hiring each employee.

Question 17

The firm's labor demand curve in the short run

A) is upward sloping.
B) is horizontal.
C) is the downward sloping segment of the marginal revenue schedule.
D) is the downward sloping segment of the marginal product of labor schedule.

Question 18

For two substitutes in production, if the substitution effect dominates

A) then the inputs are gross complements.
B) then the inputs are gross substitutes.
C) then the inputs could be either gross complements or gross substitutes.
D) then the inputs can not be used at the same time.

Question 19

Table 3.1

Referring to Table 3.1, which is of the following answers is INCORRECT? If pots sell for $20 each then

A) the marginal revenue product of labor of the second worker is $260.
B) the marginal product of the third worker is five pots.
C) the marginal revenue from selling the eighteenth pot is $20.
D) the marginal revenue product of labor equals the marginal product of labor multiplied by the additional revenue that is received per unit of output.

Question 20

If a tax is placed on an employer

A) workers will not have to pay the tax.
B) both wages and employment levels will usually decrease.
C) customers will not have to pay the tax.
D) wages will decrease but employment levels will increase.

Question 21

A competitive firm uses two inputs: capital and labor. At its current level of hiring of both inputs, capital's marginal product is 12 while labor's marginal product is 18. Capital's cost (C) is $8 per unit while labor's cost (W) is $9. In the long run, to produce the same output at a lower cost, the firm should

A) hire more labor and less capital.
B) hire less labor and less capital.
C) hire more labor and more capital.
D) hire less labor and more capital.

Question 22

A profit-maximizing firm decides to produce 100 units of output. This implies that the firm will

A) produce on its lowest isoexpenditure line.
B) produce at a point where its isoexpenditure line is everywhere below the isoquant curve for 100 units of output.
C) produce at a point where its isoexpenditure line is tangent to the isoquant curve for 100 units of output.
D) produce where the marginal rate of technical substitution equals the wage rate.

Question 23

All of the following firms are producing on the same output isoquant. Which firm will use the most labor?

A) Wage $120; Hourly Price of Capital $240
B) Wage $60; Hourly Price of Capital $40
C) Wage $6; Hourly Price of Capital $2
D) Wage $15; Hourly Price of Capital $15

Question 24

If the hourly wage is $50 and the price of output is $25 then in the short run

A) the firm should add workers if they add 1/2 or more units to output.
B) the firm should add workers if they add 2 or more units to output.
C) the firm should hire two workers.
D) the firm should reduce employment until the wage falls to $25.

Question 25

A worker's hourly wage is $25 and output sells for $5 a unit. What is the minimum marginal product a worker must produce in order for a competitive employer to break even when hiring the worker?

A) 1/5
B) 5
C) 25
D) 125

Question 26

Workers will bear less of a payroll tax if

A) the supply of labor curve is steeper.
B) employers are made to pay more of the tax.
C) the supply of labor curve is flatter.
D) employers are made to pay less of the tax.

Question 27

When the price of capital increases, a firm will

A) employ more labor because labor has become relatively cheaper.
B) employ less labor due to the increase in costs.
C) employ the same amount of labor.
D) employ more, less, or the same amount of labor.

Question 28

If a firm hires another unit of labor, output goes up by 12 units. The wage rate for the unit of labor is $6. What is the firm's cost of producing another unit of output using labor?

A) $18
B) $9
C) $1.50
D) $0.50

Question 29

If an increase in the cost of labor causes the firm to use less capital, then

A) the scale effect has dominated over the substitution effect.
B) the substitution effect has dominated over the scale effect.
C) the firm has moved along an isoquant curve.
D) the firm has moved onto a higher isoquant.

Question 30

If employers are paid a subsidy of $0.75 per hour for hiring teenage workers, then

A) the teenagers' wage rate will usually increase by less than $0.75 per hour.
B) the teenagers' wage rate will usually increase by more than $0.75 per hour.
C) the teenagers' wage rate will usually increase by exactly $0.75 per hour.
D) the teenagers' wage rate will usually decrease.

Question 31

If skilled workers are gross complements with low-skilled immigrant labor, then when there is an increase in low-skilled immigrant labor

A) skilled workers wages will go down but their employment will go up.
B) skilled workers wages will go down and their employment will go down.
C) skilled workers wages will go up and their employment will go up.
D) skilled workers wages will go up and their employment will go down.

Question 32

If labor costs twice as much as capital (per unit), then, in the long run,

A) labor will be twice as productive on average as capital.
B) labor's marginal product will be twice that of capital's.
C) the firm will hire twice as much labor as capital.
D) the firm will hire less labor and more capital.

Question 33

When a competitive firm hired nine workers, its profits were $100. When it hired 10 workers, its output was went from 9 to 11 units. Each unit of output sold for $10 while the wage of each worker was $12. What is the firm's new profit level?

A) $20
B) $8
C) $108
D) $12

Question 34

In the short run

A) a firm can not hire new workers.
B) wage rates and product prices cannot change.
C) a firm can not add on to an assembly line or introduce new machines to the production process.
D) employment levels cannot change.

Question 35

Studies show that most of a payroll tax is paid by workers in the form of lowered wages. If true, these studies imply

A) the supply of labor curve is very steep.
B) the supply of labor curve is very flat.
C) it would be better if employers were made to pay all of the tax.
D) the demand for labor curve is very steep.