Deck 12: The Labor Market

Question 1

The derived demand for a factor is more elastic the:

A)more inelastic the demand for the product using the factor.
B)smaller the technical possibilities of substituting another factor for this factor.
C)more inelastic the supply of jointly used factors.
D)larger the portion of the cost of this factor in the total cost of the product.
E)greater the tendency of the industry using the factor to hold product price constant when faced with an increase in factor cost.

Answer 1

larger the portion of the cost of this factor in the total cost of the product.

Question 2

A perfectly competitive firm should hire an additional worker only if:

A)total revenue is less than total cost.
B)the worker's marginal revenue product is less than the wage rate.
C)the worker's marginal product falls.
D)the worker's marginal product rises.
E)the worker's marginal revenue product exceeds the wage rate.

Answer 2

the worker's marginal revenue product exceeds the wage rate.

Question 3

Suppose that a firm has the opportunity to employ a new machine that will increase production by 5 units and will cost $10 to purchase.If each unit of output can be sold for $5, then the:

A)marginal revenue product of the machine is less than its cost, and the firm should not take advantage of the opportunity.
B)marginal product of the machine is exactly equal to the price of output, and the firm should therefore take advantage of the opportunity.
C)marginal revenue product of the machine is equal to $25, so the firm should take advantage of the opportunity.
D)marginal revenue product of the machine is equal to $5, so the firm should take advantage of the opportunity.
E)none of the above.

Answer 3

marginal revenue product of the machine is equal to $25, so the firm should take advantage of the opportunity.

Question 4

Income refers to:

A)the flow of wages, interest payments, dividends, and other things of value accruing during a period of time.
B)wages only.
C)total wealth.
D)how much money you have.
E)none of the above.

Question 5

Since income depends on the price of the productive services a person has to sell multiplied by the quantity of those services sold:

A)an increase in the marginal productivity of a service can increase income by making the service more desirable.
B)a decrease in the marginal productivity of a service can increase income by making the service rarer and more desirable.
C)the price of other productive services is irrelevant in determining one person's income.
D)changes in the productivity of other services have no significant influence on the income of owners of still another.
E)none of the above.

Question 6

The marginal revenue product of input A:

A)the additional revenue produced by an additional unit of input A.
B)the additional revenue produced by more than one unit of input A.
C)the subtraction of revenue produced by an additional unit of input A.
D)the total revenue produced by input A.
E)none of the above.

Question 7

If the price of wheat were to increase, the increase could have been caused by:

A)a reduction in the rent demanded by landlords for wheat lands.
B)an upward shift in the consumer demand curve for wheat.
C)a rise in the price of all of wheat's compliments.
D)a rise in the marginal product of wheat lands due to a technological advance.
E)all of the above taken together.

Question 8

The least-cost rule is that the ratio of the marginal product of a factor to the price of that factor should be:

A)equal to the amount of the factor.
B)proportional to the amount spent on the factor.
C)equal for all factors if the firm is a perfect competitor.
D)equal to the price of the product.
E)equal for all factors, no matter whether the firm sells in a perfectly or an imperfect competitive market.

Question 9

The demand for corn land will be more elastic:

A)the more inelastic is the demand for corn.
B)the more elastic is the demand for corn.
C)if the supply of farm labor is inelastic.
D)the greater the elasticity of supply.
E)if corn land is very scarce.

Question 10

The theory of income and wealth distribution analyzes:

A)the what problem.
B)the how problem.
C)the for whom problem.
D)retailing.
E)none of the above.

Question 11

The marginal revenue product of an input is:

A)the selling price of the last unit of output.
B)the increment of total revenue resulting from the use of an additional unit of input.
C)used in determining marginal product.
D)harder to determine in pure competition than in monopoly.
E)harder to determine in pure competition than in oligopoly.

Question 12

The amount of a given input demanded by a firm depends on the:

A)price of the finished good.
B)prices of all other inputs.
C)price of the input.
D)state of technology
E)all of the above..

Question 13

The theory of income distribution:

A)explains how power relations, not market relations, determine labor's share of national income.
B)explains how power relations, not market relations, determine property's share of national income.
C)explains how market relations, not power relations, determine the shares of national income for both labor and property.
D)explains little, since the theory is still so unsettled.
E)analyzes the determination of rents, wages, and interest.

Question 14

A firm achieves least-cost in production by substituting factors until their:

A)factor prices are equal.
B)marginal products are equal.
C)marginal products are each equal to their factor prices.
D)marginal products are each zero.
E)none of the above are true.

Question 15

Derived demand means:

A)consumer demands.
B)demand added to other demand.
C)demand from supply.
D)when firms demand an input, they do so because that input permits them to produce a good which consumers desire.
E)none of the above.

Question 16

You are given the following information with respect to a firm's output position: marginal product of factor A = 4; marginal product of factor B = 2; price of A = $8; price of B = $4.Assume the firm is at its maximum-profit output.Then marginal revenue must be:

A)50 cents.
B)$1.
C)$2.
D)zero
E)indeterminable from information given.

Question 17

Wealth consists of :

A)the net dollar value of assets owned at a given point in time.
B)income only.
C)net dollar value of assets owned during your entire life.
D)money only.
E)none of the above.

Question 18

When a competitive firm has reached a level of output at which the marginal revenue product of each input is equal to the price of that input it:

A)is producing that output at least possible cost, but is not necessarily at maximum-profit output level.
B)is at its maximum-profit output level, but is not necessarily producing that output at least possible cost.
C)is at maximum-profit output level and is producing that output at least possible cost.
D)is not necessarily either at maximum-profit level of output or at least possible cost for that output.
E)is none of the above.

Question 19

The government provides incomes for some in the form of:

A)taxes.
B)medicare.
C)transfer payments.
D)relief payments.
E)none of the above.

Question 20

The theory of income distribution is most directly related to:

A)factor pricing.
B)goods pricing.
C)income determination.
D)employment and growth.
E)none of the above.

Question 21

Use the following to answer questions :
Figure 12-1
What is the total paid to other factors in equilibrium in Figure 12-1?

A)42 billion dollars
B)28 billion dollars
C)12 billion dollars
D)9 billion dollars
E)18 billion dollars

Question 22

Use the following to answer questions :
Figure 12-1
What is the wage share of labor in equilibrium in Figure 12-1?

A)24 billion dollars
B)25 billion dollars
C)42 billion dollars
D)36 billion dollars
E)40 billion dollars

Question 23

Suppose the firm in the table above hires a fifth worker whose MP is 625 bushels.If output is priced at $5 per bushel what would the firm pay each of its five workers?

A)$50,000
B)$25,000
C)$19,375
D)$87,500
E)$3,125

Question 24

Use the following to answer questions :
Table 12-1
Column three (3)in the table above displays the law of:

A)decreasing returns to scale.
B)diminishing marginal productivity.
C)diminishing costs.
D)constant returns to scale.
E)none of the above.

Question 25

Use the following to answer questions :
Figure 12-1
Using the J.B.Clark model of income distribution, find the equilibrium wage rate in Figure 12-1.

A)6
B)4
C)24
D)5
E)7

Question 26

Wealth is measured as a:

A)stock.
B)random variable.
C)share of income.
D)flow.
E)any of the above.

Question 27

A firm employs two factors of production: A and B.The price of A is $6 and its marginal product at equilibrium is 2.The price of B is $24 and its marginal product at equilibrium is 8.The production function calls for twice as much A to be used as B.If the price of A drops to $5, then:

A)its marginal product will rise as a result.
B)the marginal product of B will fall below 6.
C)the production function will shift closer to an equal employment of the two inputs.
D)the marginal revenue product of A will fall below 2.
E)none of the above.

Question 28

Suppose the firm in the table above is faced with a labor force that will only work for $30,000 each.How many workers should this firm hire to maximize profit at an output priced $5 per bushel?

A)0
B)3
C)2
D)1
E)Cannot tell from given information.

Question 29

The marginal revenue product is best described as the:

A)selling price of the last unit of output.
B)increment of total cost resulting from the use of an additional unit of input.
C)marginal product divided by the unit price of the product.
D)marginal product times the marginal revenue received from the sale of an extra unit of output.
E)none of the above.

Question 30

In a fully employed market economy, how are productive resources ordinarily attracted to industries that experience a large increase in demand for their outputs?

A)By raising prices of inputs with stable prices of outputs.
B)By raising prices of outputs with stable prices of inputs.
C)By raising prices of outputs and inputs.
D)By redirecting productive resources within firms, with stable prices of inputs and outputs.
E)By none of the above.

Question 31

To make the maximum amount of profits, a business firm will:

A)produce at that output at which its total revenue is maximum.
B)not have to know anything about least-cost combinations-which make its total cost of production of any output a minimum-in order to set its marginal revenue equal to its marginal cost.
C)find out how much it costs to produce its product and then set a price which will cover these costs.
D)use the least-cost combination of factors for whatever output it finally decides to produce.
E)do none of the above.

Question 32

A monopolist will hire labor up to the point where:

A)P * MP_L = W.
B)P/W = MP_L.
C)MR * MP_L = W.
D)MR/MP_L = W.
E)W/MR = MC.

Question 33

Use the following to answer questions :
Table 12-1
The correct MP_L of the fourth worker in the table above is:

A)22,500
B)2,000
C)1,250
D)1,500
E)1,000

Question 34

Use the following to answer questions :
Table 12-1
The correct total product at three workers in the table above is:

A)17,500
B)17,000
C)16,500
D)18,000
E)16,000

Question 35

A firm achieves least cost in production by substituting factors until:

A)their factor prices are equal.
B)their marginal products are each equal to their factor prices.
C)their marginal products are each zero.
D)the ratio of their marginal products equals the ratio of their factor prices.
E)their marginal products are equal.

Question 36

An increase in the price of a particular factor will:

A)usually result in the substitution of other factors for this factor, and hence will cause quantity of this factor demanded to fall.
B)have no effect on the amount of it being used, according to the principle of least-cost, which requires only the MP of each factor be proportional to its price, not equal to it.
C)not result in diminished use of this factor if output is not decreased at the same time.
D)result in less employment only if firms have monopoly power in product markets.
E)cause the marginal revenue product curve for this factor to shift downward.

Question 37

Suppose the market price of the output whose production is summarized in the table above is $5 per bushel.What is the MRP of worker two?

A)$50,000
B)$20,000
C)$25,000
D)$12,500
E)$10,000

Question 38

The demands for factors of production are ultimately determined by:

A)each factor's marginal product.
B)the demand for final consumer goods.
C)the state of technology.
D)relative income distributions.
E)none of the above.

Question 39

If a competitive firm is maximizing profits by selling output for $2 per unit and paying a factor of production $10, then the marginal revenue product of that factor is:

A)$2.
B)$5.
C)$10.
D)$20.
E)cannot tell from the information provided.

Question 40

Use the following to answer questions :
Figure 12-1
Suppose the government imposes a minimum wage of 5.What is the total wage paid to labor in Figure 12-1?

A)24 billion dollars
B)14 billion dollars
C)20 billion dollars
D)30 billion dollars
E)4 billion dollars

Question 41

If there is imperfect competition in the product market only, then the firm's demand for labor is given by the marginal revenue product curve for labor.

Question 42

In most cases, the supply of input factors responds positively to price.

Question 43

In a two-factor perfectly competitive economy, the rectangle under the marginal product curve for labor gives land's share of output.

Question 44

Marginal revenue product is the extra revenue you get by increasing output by 1 unit.

Question 45

All the firm needs to know to find its maximum-profit position is the least-cost combination of factors for each possible output.

Question 46

When all factors' marginal products are exactly proportional to those factors' respective market prices, then the firm is necessarily maximizing its profits.

Question 47

The theory of income distribution studies how incomes are determined in a market economy.

Question 48

To find the market demand curve for a single factor of production, we simply add (horizontally)firms' derived demands for this factor.

Question 49

When a firm is at a maximum-profit position it is also necessarily at a least-cost position.

Question 50

A shift to the right in the supply curve for labor will usually lead to a lower equilibrium wage rate.

Question 51

National income includes all the incomes paid to factors of production.

Question 52

Other things being equal, when we spend relatively little on a commodity or a factor, we will do without it relatively easily when its price rises.

Question 53

A perfectly competitive firm will choose input combinations such that the MP's of all inputs are equal.

Question 54

To achieve a least-cost combination of factors for each possible output the business firm should equate the marginal product of each factor to its market price.

Question 55

It is impossible to have an increase in income without having an increase in wealth.

Question 56

Transfer payments are payments by governments to individuals that are not made in return for current goods or services.

Question 57

The quantity demanded of a factor (say labor)at a specified wage is that quantity of labor whose marginal revenue product just equals the specified wage.

Question 58

Output demand curves are derived from factor demand curves.

Question 59

Wealth consists of the net dollar value of assets owned at a given point in time.

Question 60

The amount of labor hired by a producer depends not only on the price of labor, but also on the price of machinery and other outputs.

Question 61

A perfectly competitive profit-maximizing firm will pay its workers the MRP_labor.

Question 62

If the ratio of the marginal product of land to land rent is greater than the ratio of marginal product of labor to wage rate, then costs could be lowered by substituting labor for land.

Question 63

The rule that the marginal revenue product of each factor be equal to the price of the factor ensures that the firm will not only be using a least-cost combination of factors but also be operating at its maximum-profit position.

Question 64

When a firm is at a least-cost position, it is also necessarily at a maximum-profit position.

Question 65

If global warming suddenly makes all land less productive, then the rent associated with cultivating this land should decrease.

Question 66

A perfectly competitive profit-maximizing firm producing under constant returns to scale will find that the total cost of employing all inputs will be exactly equal to the total revenue it receives when operating at equilibrium.

Question 67

In a perfectly competitive market, MR < MC at the profit-maximizing level of output.

Question 68

Supplies of factors of production depend upon characteristics of the factors and the preferences of their owners.

Question 69

The supply curve for input factors of which there is a fixed supply will be perfectly elastic.

Question 70

The invisible hand guarantees that income, wealth, and goods are distributed to the most needy people in a market economy.

Question 71

The income distribution that results from the interplay between supply and demand in an economy is not necessarily fair or just.

Question 72

The equilibrium price of the input in a competitive market comes at that level where the quantities supplied and demanded are equal.

Question 73

In recent years, the rise of market capitalism around the world has led to more efficiency in production and more efficiency in income distribution.

Question 74

An increase in the price of one factor (without an equivalent increase in its productivity)will cause employment of that factor to fall, both because of substitution into cheaper factors and because the minimum-profit output may now be smaller.

Question 75

If a commodity demand curve becomes more elastic due to shifts in consumer tastes, its derived demand curve for inputs also becomes more elastic.

Question 76

The quantity demanded of labor at a specified wage is that quantity such that 1 more unit of labor would cause diminishing returns.

Question 77

Factor prices and quantities are determined by the interaction of factor supply and demand.

Question 78

Elasticity of final demand will influence the elasticity in derived demand for the factors of production involved.

Question 79

If the payments to a factor represent a small proportion of total cost, then the demand for the factor will tend to be relatively inelastic.

Question 80

In a perfectly competitive market, output price is equal to the marginal cost of production.