Deck 12: Wages and Employment in Perfect Competition

Question 1

Hiring labor up to the point that the extra revenue generated by the additional labor equals the extra cost is an application of the:

A) marginal decision rule.
B) marginal product rule.
C) marginal revenue product rule.
D) marginal factor cost rule.

Answer 1

marginal decision rule.

Question 2

A profit-maximizing firm will base its decision to hire additional labor on the marginal decision rule: If the extra output that is produced by hiring one more unit of labor adds more to _______ than to _______ , the firm will increase its profit by increasing the use of labor.

A) total cost; total revenue
B) total revenue; total cost
C) marginal cost; marginal revenue
D) marginal revenue; marginal cost

Answer 2

total revenue; total cost

Question 3

Which of the following statements is true?

A) MRP = MP x MR
B) MRP = a one-unit change in a factor/change in total revenue.
C) MFC = change in total revenue/one-unit change in a factor.
D) MRP = change in the quantity of a factor times the price of the factor.

Answer 3

MRP = MP x MR

Question 4

In perfect competition, marginal revenue product is equal to:

A) the product price.
B) marginal product.
C) marginal product multiplied by the product price.
D) the ratio of marginal product to the product price.

Question 5

The accepted way(s) to view the labor market is (are):

A) as a single national market.
B) as a focus on particular job categories.
C) as a focus on geographic areas.
D) all of the above-as a single national market or as a focus on particular jobs and geographic areas.

Question 6

If the _______ of labor is increased, ceteris paribus, eventually the _______ will ________.

A) price; supply of labor; increase
B) quantity; marginal product of labor; fall
C) quantity; marginal product of labor; rise
D) quantity; marginal revenue product of labor, rise

Question 7

Marginal revenue product is calculated as:

A) MP ÷ MR.
B) MP ÷ P.
C) MP × MR.
D) MR ÷ MP.

Question 8

A firm's demand curve for labor is:

A) the upward-sloping portion of its marginal revenue product curve.
B) the downward-sloping portion of its marginal product curve.
C) the downward-sloping portion of its marginal revenue product curve.
D) horizontal for the firm in perfect competition.

Question 9

In terms of contribution to total income, the single most important factor of production is:

A) capital.
B) labor.
C) natural resources.
D) entrepreneurship.

Question 10

If marginal product is _______ , marginal revenue product must be _______ .

A) rising; falling
B) falling; falling
C) falling; rising
D) rising; zero

Question 11

The amount that an additional unit of a factor adds to a firm's total revenue is called:

A) marginal revenue.
B) marginal cost.
C) additional revenue product.
D) marginal revenue product.

Question 12

The amount by which an additional unit of a factor increases the firm's total revenue during a period is:

A) marginal revenue product.
B) average product.
C) marginal factor cost.
D) marginal physical product.

Question 13

In perfect competition where P is the price of output:

A) MRPL = MPL x P.
B) MRPL/MPL = PL.
C) MRP/P = MPK.
D) MRPL x P = MPL.

Question 14

The assumption of perfect competition is sometimes used in the analysis of labor markets because:

A) it provides important insights.
B) it is totally realistic.
C) it is totally unrealistic.
D) all markets are perfectly competitive.

Question 15

Which of the following is correct?

A) MRP = MC x MR.
B) MRP = MP x MR.
C) MP = MRP x MR.
D) MRP/ MC = TR.

Question 16

Marginal product times marginal revenue is:

A) marginal revenue.
B) marginal revenue product.
C) additional revenue product.
D) none of the above.

Question 17

Which of the following statements is true?

A) Marginal product is the change in total revenue divided by a one-unit change in a factor.
B) Marginal revenue is the change in total output divided by the change in output.
C) Marginal revenue product is marginal product times marginal revenue.
D) Marginal factor cost is equal to average total cost.

Question 18

In perfect competition where P is the price of output:

A) MRP = MP x P.
B) MRP/ P = Price of input.
C) MRP/MP = Price of input.
D) MRP x P = MP.

Question 19

Marginal revenue product is the:

A) change in total output resulting from a unit change in the quantity of a variable input.
B) change in total revenue resulting from a unit change in the quantity of a variable input.
C) change in total cost resulting from a unit change in the quantity of a variable input.
D) ratio of total revenue to the quantity of a variable input employed.

Question 20

Markets in which households supply factors of production demanded by firms are:

A) goods markets.
B) factor markets.
C) product markets.
D) output markets.

Question 21

Marginal factor cost is the:

A) amount a factor adds to a firm's total revenue per period.
B) change in the quantity of the factor divided by the change in total cost.
C) change in total cost divided by the change in the quantity of the factor.
D) same as marginal fixed cost.

Question 22

In a perfectly competitive factor market, a firm finds that the price of a factor of production is _______ its marginal factor cost.

A) less than
B) the same as
C) greater than
D) unrelated to

Question 23

Use the following to answer question(s):
(Exhibit: Marginal Revenue Product and Demand) If the product price is $2 per unit and the price of the factor of production is $1080 per unit, the profit-maximizing quantity of the factor is _______ units.

A) 0
B) 2
C) 4
D) 6

Question 24

A firm increases its purchases of a factor of production in a perfectly competitive market from 10 units to 11 units.If the market price of the factor is $10 per unit, the marginal factor cost for the tenth unit is:

A) $10.
B) $20.
C) $100.
D) $110.

Question 25

Use the following to answer question(s):
(Exhibit: Marginal Revenue Product and Demand) If the product price is $4 per unit and the price of the factor of production is $180 per unit, the profit-maximizing quantity of the factor is _______ unit(s).

A) 0
B) 1
C) 3
D) 5

Question 26

The change in total cost when one more unit of a factor of production is added is:

A) marginal revenue product.
B) marginal product.
C) marginal cost.
D) marginal factor cost.

Question 27

If a firm is using a factor of production from a perfectly competitive market at a quantity of the factor where MFC = MRP, then profit:

A) is maximized.
B) can be increased by using less of the factor.
C) can be increased by using more of the factor.
D) can be increased by decreasing the factor price.

Question 28

In a perfectly competitive labor market:

A) the price of labor is equal to the MP of labor.
B) MFC is graphed as an upward sloping line.
C) the firm will maximize profits in the hiring of labor if it hires where MRP = MFC.
D) the price of labor and capital are equal.

Question 29

Use the following to answer question(s):
(Exhibit: Marginal Revenue Product and Demand) If the product price is $2 per unit, the marginal revenue product for the fifth unit of the variable input is:

A) $0.
B) $20.
C) $40.
D) $60.

Question 30

A firm increases its purchases of a factor of production in a perfectly competitive market from 10 units to 11 units.If the market price of the factor is $20 per unit, the marginal factor cost for the eleventh unit is:

A) $10.
B) $20.
C) $200.
D) $220.

Question 31

Use the following to answer question(s):
(Exhibit: Marginal Revenue Product and Demand) If the product price is $2 per unit, the marginal revenue product for the third unit of the variable input is:

A) $2.
B) $10.
C) $60.
D) $80.

Question 32

The amount a factor adds to a firm's total cost per period is called:

A) marginal factor cost.
B) marginal cost.
C) MFR.
D) marginal fixed cost.

Question 33

A firm will maximize profits in the hiring of labor if it hires where:

A) MRP > MFC.
B) MRP = MFC.
C) MRP < MFC.
D) MP x MR = MRP.

Question 34

Which of the following statements is true?

A) MFC = change in total cost/ change in the quantity of a factor.
B) MRPL = MPL x (P), where P is the price of labor.
C) MFC = the change in the quantity of a factor times the change in the price of the factor.
D) MRPL = MC of the output.

Question 35

Use the following to answer question(s):
(Exhibit: Marginal Revenue Product and Demand) If the product price is $4 per unit and the price of the factor of production is $80 per unit, the profit-maximizing quantity of the factor is _______ unit(s).

A) 1
B) 3
C) 5
D) 7

Question 36

If a firm is using a factor of production from a perfectly competitive market such that MFC < MRP, then profit:

A) is maximized.
B) can be increased by using less of the factor.
C) can be increased by using more of the factor.
D) can be increased by increasing the factor price.

Question 37

Use the following to answer question(s):
(Exhibit: Marginal Revenue Product and Demand) If the product price is $2 per unit and the price of the factor of production is $20 per unit, the profit-maximizing quantity of the factor is _______ units.

A) 2
B) 4
C) 6
D) 8

Question 38

MFC is equal to the:

A) marginal product of labor times the price of output.
B) change in total cost resulting from a one-unit change in a factor.
C) change in the quantity of labor times the price of labor.
D) change in total cost resulting from a one-unit change in output.

Question 39

Use the following to answer question(s):
(Exhibit: Marginal Revenue Product and Demand) If the product price is $2 per unit and the price of the factor of production is $60 per unit, the profit-maximizing quantity of the factor is _______ units.

A) 0
B) 2
C) 4
D) 6

Question 40

If a firm is using a factor of production from a perfectly competitive market such that MFC > MRP, then profit:

A) is maximized.
B) can be increased by using less of the factor.
C) can be increased by using more of the factor.
D) can be increased by decreasing the factor price.

Question 41

A factor demand curve will shift because of:

A) the slope of the MP curve.
B) changes in technology.
C) the elasticity of demand for the final product.
D) the proportion of the factor's cost relative to total cost.

Question 42

A change in demand for a given factor of production will not occur if:

A) the price of that factor falls.
B) the productivity of that factor increases.
C) the productivity of that factor decreases.
D) there is a decrease in the price of a substitute factor.

Question 43

Use the following to answer question(s):
(Exhibit: Marginal Revenue Product and Demand) Assume that the product price is $2 per unit, the price of the factor of production is $40 per unit, and 8 units are being hired.Profit can be maximized by hiring _______ unit(s).

A) 1 more
B) 2 more
C) 1 fewer
D) 3 fewer

Question 44

If an increase in the use of one factor of production lowers the demand for the other, the two factors are:

A) normal factors of production.
B) substitute factors of production.
C) inferior factors of production.
D) complementary factors of production.

Question 45

Use the following to answer question(s):
(Exhibit: Marginal Revenue Product and Demand) Assume that the product price is $2 per unit, the price of the factor of production is $40 per unit, and 4 units are being hired.Profit can be maximized by hiring _______ unit(s).

A) 1 more
B) 2 more
C) 1 fewer
D) 2 fewer

Question 46

Use the following to answer question(s):
(Exhibit: Marginal Revenue Product and Demand) Assume that the product price is $2 per unit, the price of the factor of production is $20 per unit, and 8 units are being hired.Profit can be maximized by hiring _______ unit(s).

A) 1 more
B) 2 more
C) 1 fewer
D) 2 fewer

Question 47

A factor demand curve will shift because of:

A) a change in the number of firms.
B) the slope of the MP curve.
C) the elasticity of demand for the final product.
D) the proportion of the factor's cost relative to total cost.

Question 48

A firm is in equilibrium when the marginal factor cost is:

A) less than the price of the factor.
B) greater than the average product.
C) equal to the average product.
D) equal to the marginal revenue product.

Question 49

A firm's demand curve for an input in a perfectly competitive market is the downward-sloping portion of its:

A) marginal revenue curve.
B) average total cost curve.
C) marginal revenue product curve.
D) total revenue curve.

Question 50

The condition for hiring factors of production- that is, where MFC = MRP- is analogous to the profit-maximizing output condition:

A) TR = TC.
B) MR = MC.
C) AR = ATC.
D) P = MR.

Question 51

A factor demand curve will shift because of:

A) the slope of the MP curve.
B) the elasticity of demand for the final product.
C) the proportion of the factor's cost relative to total cost.
D) a change in the price of a complementary factor.

Question 52

The labor demand curve in a perfectly competitive factor market is the sum of all firms':

A) marginal product curves.
B) marginal revenue product curves.
C) marginal physical product curves.
D) average physical product curves.

Question 53

If an increase in the use of one factor of production increases the demand for the other, the two factors are:

A) normal factors of production.
B) substitute factors of production.
C) inferior factors of production.
D) complementary factors of production.

Question 54

A factor demand curve will shift because of:

A) the slope of the MP curve.
B) the elasticity of demand for the final product.
C) the proportion of the factor's cost relative to total cost.
D) a change in the product demand.

Question 55

A factor demand curve will shift because of:

A) a change in the price of a substitute factor.
B) the elasticity of demand for the final product.
C) the proportion of the factor's cost relative to total cost.
D) the slope of the MP curve.

Question 56

A change in the quantity demanded of chocolate, a factor of production used to produce chocolate-covered peanuts, will occur if:

A) the price of chocolate increases.
B) the price of chocolate-covered peanuts increases.
C) the demand for chocolate-covered peanuts decreases.
D) a new, improved chocolate-covered-peanut-making machine is purchased by candy companies.

Question 57

Which of the following statements is true?

A) If MFCL < MRPL the firm should hire more labor.
B) If the MFCL > MRPL the firm should hire more labor.
C) If the MFCL = MRPL the firm should hire more labor.
D) If MFCL > 0, the firm should shut down.

Question 58

A change in the quantity demanded of peanuts, a factor of production used to produce chocolate-covered peanuts, will occur if:

A) the price of peanuts decreases.
B) the price of chocolate-covered peanuts increases.
C) the demand for chocolate-covered peanuts decreases.
D) a new, improved chocolate-covered-peanut-making machine is purchased by candy companies.

Question 59

A change in the quantity demanded of a given factor of production will occur if:

A) the productivity of that factor decreases.
B) the productivity of that factor increases.
C) the price of that factor rises.
D) there is a decrease in the price of a substitute factor.

Question 60

Perfectly competitive factor and output markets that satisfy the efficiency condition are similar in that both generate:

A) an underproduction of output.
B) an overproduction of output.
C) market prices that are greater than opportunity costs.
D) market prices that are equal to opportunity costs.

Question 61

In terms of labor supply, the substitution effect of a higher wage causes a(n):

A) increase in leisure time.
B) increase in the quantity of labor supplied.
C) substitution of leisure for work.
D) reduction of work time to zero.

Question 62

According to the Case in Point on computer technology and demand for workers, which of the following tasks has undergone a decreased demand for labor as the price of computers has decreased?

A) record-keeping
B) forming & testing hypothesis
C) medical diagnosis
D) janitorial services

Question 63

Which of the following statements is true?

A) Leisure is a normal good.
B) Leisure is an inferior good.
C) All other things unchanged, an increase in income will decrease the demand for leisure.
D) The demand for leisure is perfectly inelastic.

Question 64

Among the determinants of the demand for labor are:

A) substitute availability.
B) the supply of labor.
C) the wage rate.
D) the slope of the demand for labor curve.

Question 65

When a(n) _______ in the use of one factor _______ the demand for another factor, the two factors are complementary factors of production.

A) decrease; increases
B) increase; increases
C) decrease; does not change
D) increase; does not change

Question 66

A _______ wage will _______ the _______ leisure.

A) lower; increase; price of
B) higher; necessarily decrease; amount of time spent on
C) higher; increase; price of
D) lower; not affect; amount of time spent on

Question 67

A lower wage:

A) has an income effect but not a substitution effect on the quantity of labor supplied.
B) means a higher income for any given level of labor supplied.
C) has an income effect which is always negative with respect to the quantity of labor supplied.
D) has an income effect which is always positive with respect to the quantity of labor supplied.

Question 68

The trade-off between work and leisure underlying the supply of labor involves the income effect and the:

A) substitution effect.
B) elasticity effect.
C) production effect.
D) wage effect.

Question 69

The _______ effect of a _______ wage causes individuals to substitute _______ .

A) substitution, higher; labor for leisure
B) income; higher; labor for leisure
C) substitution; lower; labor for leisure
D) complementary; constant; leisure for labor

Question 70

A determinant of the demand for a factor of production is the:

A) price of the factor.
B) marginal cost of the factor.
C) productivity of the factor.
D) quantity of the factor supplied.

Question 71

A higher wage _______ the price of _______ and _______ workers incomes.The result of these two changes pulls the quantity of labor supplied in _______ direction(s).

A) increases; leisure; increases; opposite
B) increases; leisure; increases; the same
C) reduces; work effort; reduces; opposite
D) reduces; labor; increases; the same

Question 72

Factor demand is said to be derived demand because it:

A) requires the use of other factors.
B) depends on product demand.
C) has a downward-sloping demand curve.
D) has a constant marginal factor cost.

Question 73

A determinant of the demand for a factor of production is the:

A) price of the factor.
B) price of a substitute factor.
C) marginal cost of the factor.
D) quantity of the factor supplied.

Question 74

A wage _______ raises the quantity of labor supplied through the _______ effect.

A) decrease; substitution
B) increase; substitution
C) increase; income
D) decrease; complement

Question 75

The more work a person does, all other things unchanged, then the:

A) greater his or her free time.
B) greater his or her nonmarket use of time.
C) less his or her income.
D) less his or her leisure.

Question 76

Given that MUY = marginal utility of income, MULE = marginal utility of leisure, and W is the wage, utility is maximized by allocating time between work and leisure so that:

A) MUY = MULE.
B) MUY × PY = MULE ×W.
C) MUY/PY = MULE/W.
D) PY = W.

Question 77

The price of an extra hour of leisure is:

A) $1.
B) the hourly wage rate.
C) the same as the price of money.
D) the total utility of labor.

Question 78

Which of the following statements is true?

A) The market demand curve for labor is found by adding the supply curves for labor of individual firms.
B) A firm's demand for labor is the upward-sloping portion of the MRP curve for labor.
C) The market demand for labor will change as a result of a change in the use of a complementary factor or a substitute factor.
D) The market demand curve for labor is vertical at the profit-maximizing wage.

Question 79

A determinant of the demand for a factor of production is the:

A) price of the factor.
B) marginal cost of the factor.
C) quantity of the factor supplied.
D) price of the product made with the factor.

Question 80

The trade-off between work and leisure underlying the supply of labor involves the substitution effect and the:

A) production effect.
B) elasticity effect.
C) income effect.
D) complementary effect.