Deck 18: The Markets for the Factors of Production

Question 1

When a competitive firm hires labor up to the point at which the value of the marginal product of labor equals the wage,it also produces up to the point at which the price of output equals average variable cost.

Answer 1

False

Question 2

A profit-maximizing competitive firm will hire workers up to the point at which the wage equals the price of the final good.

Answer 2

False

Question 3

Labor-augmenting technological advances increase the marginal productivity of labor.

Answer 3

True

Question 4

For competitive firms,the curve that represents the value of marginal product of labor is the same as the demand for labor curve.

Question 5

To compute the value of the marginal product of capital,you should multiply the market price of the good by the marginal product of capital.

Question 6

Labor-augmenting technological advances decrease the marginal productivity of labor.

Question 7

In 2008,the total income of all U.S.residents was approximately $120 billion.

Question 8

A profit-maximizing competitive firm will hire workers up to the point at which the wage equals the marginal product of labor.

Question 9

In the United States,technological advances help explain persistently rising employment in the face of rising wages.

Question 10

The idea that rational employers think at the margin is central to understanding how many units of labor they choose to employ.

Question 11

The demand for computer programmers is inseparably tied to the supply of computer software.

Question 12

Technological advances can cause the labor demand curve to shift.

Question 13

The term Luddite refers to "tekkies" or people who are the first to adopt new technological advances.

Question 14

If Firm X is a competitive firm in the market for labor,it has little influence over the wage it pays its employees.

Question 15

If the marginal productivity of the sixth worker hired is less than the marginal productivity of the fifth worker hired,then the addition of the sixth worker causes total output to decline.

Question 16

Let L represent the quantity of labor and let Q represent the quantity of output.Suppose a certain production function includes the points (L = 7,Q = 27),(L = 8,Q = 35),and
(L = 9,Q = 45).Based on these three points,this production function exhibits diminishing marginal product.

Question 17

The value of the marginal product of labor can be calculated as the price of the final good minus the marginal product of labor.

Question 18

Labor-saving technological advances decrease the marginal productivity of labor.

Question 19

In order to calculate the value of the marginal product of labor,a manager must know the marginal product of labor and the wage rate of the worker.

Question 20

Labor-saving technological advances increase the marginal productivity of labor.

Question 21

The labor supply curve reflects how workers' decisions about the labor-leisure tradeoff respond to changes in the opportunity cost of leisure.

Question 22

Profit maximization by firms ensures that the equilibrium wage always equals the value of the marginal product of capital.

Question 23

Movements of workers from country to country can cause shifts in the labor supply curves for both countries.

Question 24

The labor-supply curve is affected by the trade-off between labor and leisure.

Question 25

Changes in supply and demand in the labor market will cause changes in wages.

Question 26

The supply of labor in any one market depends on the opportunities available in other markets.

Question 27

If the demand for labor decreases and the supply of labor is unchanged,then the opportunity cost of leisure will decrease.

Question 28

An increase in a product's price will shift the labor demand curve for that product to the left.

Question 29

The opportunity cost of leisure is impossible to measure,since we can't measure leisure time in dollars.

Question 30

The quantity available of one factor of production can affect the marginal product of other factors.

Question 31

From 1960 to 2000,inflation-adjusted wages increased by 131 percent in the U.S.As a result,firms reduced the amount of labor they employed by nearly 20 percent.

Question 32

When an individual's income goes up,that individual may choose to supply less labor,resulting in a backward-sloping labor supply curve.

Question 33

In a competitive market for labor,the equilibrium wage always equals the value of the marginal product.

Question 34

Labor supply curves are always upward sloping.

Question 35

Average productivity can be measured as total output divided by total units of labor.

Question 36

In general,less productive workers are paid less than more productive workers.

Question 37

Increases in productivity are not responsible for increased standards of living in the United States.

Question 38

If the demand for labor in a particular industry increases,the equilibrium wage in that industry will also increase.

Question 39

Oil field workers' wages are directly tied to the world price of oil.

Question 40

As the number of concrete workers in the United States falls,the wage paid to the remaining concrete workers will necessarily fall as well.

Question 41

For a snow-removal business,the capital stock would include inputs such as snow blowers and shovels.

Question 42

Describe the difference between the purchase price of capital and the rental price of capital.If you know the value of marginal product from the flow of capital services,how would you determine the market price for the capital stock?

Question 43

In the 1980s,the dangerous Ebola virus entered the United States through contaminated monkeys that were imported for use in medical experiments.Suppose this virus had not been contained but had spread to the general population.Assume that the virus is lethal in half of the people who are exposed to it.Describe the resulting effect on labor productivity.

Question 44

When a firm decides to retain its earnings instead of paying dividends,the stockholders necessarily suffer.

Question 45

Firms pay out a portion of their earnings in the form of interest and dividends,and those payments are a portion of the economy's capital income.

Question 46

A recent flood in the Midwest has destroyed much of the farmland that lies in fertile regions near the rivers.Describe the effect of the flood on the marginal productivity of land,labor,and capital.How would the flood affect the price of inputs? Provide some examples.

Question 47

If the output price of a product rises,the demand for capital will increase,raising the rental price of capital.

Question 48

The marginal product of land depends on the quantity of land that is available.

Question 49

Capital income does not include income paid to households for the use of their capital.

Question 50

The rental price of capital is the price a person pays to own the capital indefinitely.

Question 51

Describe the difference between a diminishing marginal product of labor and a negative marginal product of labor.Why would a profit-maximizing firm always choose to operate where the marginal product of labor is decreasing (but not negative)?

Question 52

Suppose the supply of capital decreases.As a result,the quantity of capital used in production and the rental price of capital will both fall.

Question 53

Explain how a firm values the contribution of workers to its profitability.Would a profit-maximizing competitive firm ever stop increasing employment as long as marginal product is rising? Explain your answer.

Question 54

A change in the supply of any one factor alters the earnings of all the other factors.

Question 55

Suppose an influenza pandemic were to significantly decrease the population of a country.We would predict a decrease in the marginal product of land in that country.

Question 56

Describe the process by which the market for capital and the market for land reach equilibrium.As part of your description,elaborate on the role of the stock of the resource versus the flow of services from the resource.

Question 57

Capital owners are compensated according to the value of the marginal product of that capital.

Question 58

Using the theory of wage determination,explain why wages in developing countries.where levels of capital are small,are typically quite low.

Question 59

In 2008,the total income of all U.S.residents was about

A) $12 billion.
B) $14 billion.
C) $12 trillion.
D) $14 trillion.

Question 60

The demand curve for each factor of production equals the value of the marginal product of that factor.

Question 61

The production function is the

A) increase in the amount of output from an additional unit of labor.
B) marginal product of an input times the price of output.
C) relationship between the quantity of inputs and output.
D) shift in labor demand caused by a change in the price of output.

Question 62

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

A) households in the form of wages and fringe benefits.
B) landowners in the form of rent.
C) landowners in the form of interest.
D) landowners in the form of profit.

Question 63

Suppose that a competitive firm hires labor up to the point at which the value of the marginal product equals the wage.If the firm pays a wage of $700 per week and the marginal product of labor equals 20 units per week,then the marginal cost of producing an additional unit of output is

A) $35
B) $70
C) $700
D) We do not have enough information to answer this question.

Question 64

Table 18-2
The following table shows the production function for a particular business.The numbers represent the various labor and output combinations the firm may choose for its output on a daily basis.


-Refer to Table 18-2.Suppose this firm charges a price of $5 per unit of output and pays workers a wage equal to $160 per day.What is the value of the marginal product of labor for the fourth worker?

A) $200
B) $1,000
C) $6,400
D) $32,000

Question 65

Figure 18-1.On the graph,L represents the quantity of labor and Q represents the quantity of output per week.

-Refer to Figure 18-1.The figure illustrates the

A) demand for labor.
B) supply of labor.
C) production function.
D) wage function.

Question 66

Which of the following statements is correct?

A) An increase in the supply of other factors,such as capital,will increase the demand for labor.
B) Labor-saving technology will increase the demand for labor.
C) Labor-augmenting technology will decrease the demand for labor.
D) A decrease in the price of output will increase the demand for labor.

Question 67

Table 18-2
The following table shows the production function for a particular business.The numbers represent the various labor and output combinations the firm may choose for its output on a daily basis.


-Refer to Table 18-2.Suppose this firm charges a price of $5 per unit of output and pays workers a wage equal to $160 per day.How many workers should this firm hire to maximize its profit?

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

Question 68

Since workers in the U.S.economy receive most of the total income earned,which of the following factors of production is considered to be the most important?

A) Profit
B) Wages
C) Interest
D) Labor

Question 69

Scenario 18-1
Harry owns a snow-removal business.He hires workers to shovel driveways for him during the winter.The first worker he hires can shovel twelve driveways in one day.When Harry hires two workers,they can shovel a total of 22 driveways in one day.When Harry hires a third worker,he shovels an additional eight driveways in one day.

-Refer to Scenario 18-1.Suppose that Harry pays each worker $80 per day and that he charges each customer $20 to have his driveway shoveled.What is the value of the marginal product of labor for the third worker?

A) $160
B) $640
C) $1,600
D) $2,400

Question 70

Table 18-2
The following table shows the production function for a particular business.The numbers represent the various labor and output combinations the firm may choose for its output on a daily basis.


-Refer to Table 18-2.What is the marginal product of the fifth unit of labor?

A) 30 units
B) 40 units
C) 50 units
D) 250 units

Question 71

The value of the marginal product of labor

A) increases when the price of output decreases.
B) is the firm's demand for labor.
C) equals the marginal product of labor divided by the wage rate.
D) All of the above are correct.

Question 72

Scenario 18-1
Harry owns a snow-removal business.He hires workers to shovel driveways for him during the winter.The first worker he hires can shovel twelve driveways in one day.When Harry hires two workers,they can shovel a total of 22 driveways in one day.When Harry hires a third worker,he shovels an additional eight driveways in one day.

-Refer to Scenario 18-1.Suppose that Harry pays each worker $80 per day and that he charges each customer $20 to have his driveway shoveled.What is the value of the marginal product of labor for the second worker?

A) $200
B) $240
C) $800
D) $960

Question 73

Table 18-2
The following table shows the production function for a particular business.The numbers represent the various labor and output combinations the firm may choose for its output on a daily basis.


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

A) 40 units
B) 50 units
C) 60 units
D) 180 units

Question 74

Table 18-2
The following table shows the production function for a particular business.The numbers represent the various labor and output combinations the firm may choose for its output on a daily basis.


-Refer to Table 18-2.Suppose this firm charges a price of $5 per unit of output and pays workers a wage equal to $160 per day.What is the value of the marginal product of labor for the second worker?

A) $300
B) $650
C) $9,600
D) $20,800

Question 75

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

A) about 25 percent
B) about 50 percent
C) about 75 percent
D) about 87 percent

Question 76

Scenario 18-1
Harry owns a snow-removal business.He hires workers to shovel driveways for him during the winter.The first worker he hires can shovel twelve driveways in one day.When Harry hires two workers,they can shovel a total of 22 driveways in one day.When Harry hires a third worker,he shovels an additional eight driveways in one day.

-Refer to Scenario 18-1.What is the total productivity of three workers?

A) 12
B) 22
C) 30
D) 42

Question 77

Table 18-1


-Refer to Table 18-1.Which firm's production function exhibits diminishing marginal product?

A) Firm A
B) Firm B
C) Firm C
D) Firm D

Question 78

Suppose that a competitive firm hires labor up to the point at which the value of the marginal product equals the wage.If the firm pays a wage of $700 per week and the marginal product of labor equals 100 units per week,then the marginal cost of producing an additional unit of output is

A) $7
B) $70
C) $700
D) We do not have enough information to answer this question.

Question 79

Scenario 18-1
Harry owns a snow-removal business.He hires workers to shovel driveways for him during the winter.The first worker he hires can shovel twelve driveways in one day.When Harry hires two workers,they can shovel a total of 22 driveways in one day.When Harry hires a third worker,he shovels an additional eight driveways in one day.

-Refer to Scenario 18-1.What is the marginal productivity of the second worker?

A) 7
B) 10
C) 12
D) 22

Question 80

Capital,labor,and land

A) have derived demands.
B) are factors of production.
C) are inputs used in the production of goods and services.
D) All of the above are correct.