Deck 26: Demand in the Factor Market

Question 1

More complementary resources would tend to

A)raise the productivity and the marginal revenue product of labor.
B)lower the productivity and the marginal revenue product of labor.
C)raise the productivity of labor but lower its marginal revenue product.
D)lower the productivity of labor but raise its marginal revenue product.

Answer 1

raise the productivity and the marginal revenue product of labor.

Question 2

The firm will rent more and more land until the rent and the ____ of the last unit of land hired are equal.

A)marginal physical product
B)MRP
C)output

Answer 2

MRP

Question 3

The additional output that one additional input of labor is responsible for is its

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

Answer 3

marginal physical product.

Question 4

Use the following Table to answer the question :

The maximum units of input you would possibly hire would be

A)3.
B)4.
C)5.
D)6.
E)7.

Question 5

In general, the MRP _____ as output increases.

A)declines
B)rises
C)stays the same

Question 6

As output rises,

A)both marginal revenue product and marginal physical product rise.
B)both marginal revenue product and marginal physical product fall.
C)marginal revenue product rises and marginal physical product falls.
D)marginal revenue product rises and marginal physical product rises.

Question 7

The demand for a resource rises as

A)its productivity rises and the relative prices of substitutable resources rise.
B)its productivity rises and prices of substitutable resources fall.
C)its productivity falls and the relative prices of substitutable resources fall.
D)its productivity falls and prices of substitutable resources fall.

Question 8

You can find the MRP by multiplying marginal physical product by price for

A)both the perfect competitor and the imperfect competitor.
B)neither the perfect competitor nor the imperfect competitor.
C)only the perfect competitor.
D)only the imperfect competitor.

Question 9

White-collar employment has risen sharply since the introduction of computers, so clearly the

A)output effect has outweighed the substitution effect.
B)substitution effect has outweighed the output effect.
C)substitution and output effects are equal.

Question 10

The optimum resource mix for a firm would be

A)wage rate/rent = MRP of labor/MRP of land.
B)wage rate * rent = MRP of labor * MRP of land.
C)MRP of labor/wage rate = MRP of land/rent.
D)None of these choices are correct.

Question 11

Workers in one country are more productive than workers in another country because

A)they have fewer complementary factors to work with.
B)they have more complementary factors to work with.
C)they are better motivated and paid.

Question 12

The additional revenue obtained by selling the output produced by one more unit of a resource is its

A)marginal physical product.
B)marginal revenue product.
C)final demand.
D)average revenue product.

Question 13

Which statement is true?

A)A change in derived demand brings about a change in final demand.
B)A change in final demand brings about a change in derived demand.
C)A rise in final demand is associated with a decline in derived demand.
D)None of these statements are true.

Question 14

How much of a resource a firm will purchase depends on

A)the price of that resource.
B)the productivity of that resource.
C)the selling price of the final product that the resource helps to produce.
D)the selling prices of close substitutes of the final product.
E)All of the choices are correct.

Question 15

The substitution effect and the output effect work in the

A)same direction some of the time.
B)same direction all of the time.
C)opposite direction some of the time.
D)opposite direction all of the time.

Question 16

A fall in the demand for the final product brings about

A)a rise in derived demand.
B)a fall in derived demand.
C)no change in derived demand.

Question 17

The demand for goods and services is called ____ demand, while the demand for resources is called ____ demand.

A)derived; derived
B)final; final
C)final; derived
D)derive; final

Question 18

Productivity is _________ per unit of __________.

A)output; input
B)input; output
C)labor; capital
D)None of these choices are true.

Question 19

A rise in the wage rate would lead to a movement

A)down the MRP curve and a rise in the number of workers hired.
B)down the MRP curve and a decline in the number of workers hired.
C)up the MRP curve and a decline in the number of workers hired.
D)up the MRP curve and a rise in the number of workers hired.

Question 20

A firm will continue hiring labor as long as the MRP of labor _______ the market wage rate.

A)is equal to
B)determines
C)is less than
D)is greater than

Question 21

If the output per acre of land triples, then the productivity of an acre of land

A)has been cut by two-thirds.
B)has been cut by one-third.
C)has stayed about the same.
D)has increased.
E)has tripled.

Question 22

The demand for an input is called a derived demand because

A)employers of inputs, particularly labor, derive income from using inputs.
B)employers derive satisfaction from giving employment to an input.
C)the demand for output is derived from the demand for the inputs used to produce it.
D)it arises from the demand for the output that the input is used to produce.

Question 23

The marginal revenue product schedule for land refers to

A)a firm's demand for land.
B)the final demand for land.
C)the final supply of land.
D)the firm's supply of land.
E)the marginal physical product schedule for land.

Question 24

A rise in the marginal revenue product schedule for labor

A)means that the marginal physical product of labor rose.
B)means that more labor is demanded by the firm.
C)means that the demand for the final product has fallen.
D)means that labor's productivity has risen.

Question 25

If labor and capital are substitute resources in production, an increase in the price of capital will

A)increase the wage rate and decrease the number of workers hired.
B)decrease the wage rate and increase the number of workers hired.
C)decrease the wage rate and decrease the number of workers hired.
D)increase the wage rate and increase the number of workers hired.

Question 26

An increase in the demand for steel occurs. As a result, firms in the steel industry will

A)experience no change in their demand for capital.
B)decrease their demand for capital.
C)decrease both output and their demand for capital.
D)increase their demand for capital.

Question 27

An increase in the price of crude oil, a basic input into the production of gasoline, is likely to

A)put downward pressure on the price of gasoline.
B)put upward pressure on the price of gasoline.
C)decrease the demand for gasoline.
D)increase the quantity of gasoline demanded.

Question 28

A decline in the wage rate would

A)raise the quantity of labor demanded.
B)lower the quantity of labor demanded.
C)increase the demand for labor.
D)decrease the demand for labor.

Question 29

If a large decrease in rent leads to a firm cutting back on the labor it uses,

A)the output effect outweighs the substitution effect.
B)the substitution effect outweighs the output effect.
C)the substitution and output effects are equal.
D)there is no way of determining the relative strengths of the output and substitution effects.

Question 30

The most important influence on the marginal revenue product schedule for computer software engineers would be a change in

A)their productivity.
B)a change in the price of laser printers.
C)a change in the demand for computer software.
D)a change in the quantity of capital available to produce computer software.

Question 31

Suppose that land and capital are substitute resources. If rent rose, then the employment of capital would be _____ by the substitution effect and _____ by the output effect.

A)increased; increased
B)decreased; decreased
C)increased; decreased
D)decreased; increased

Question 32

The MRP curve for labor generally expresses

A)a particular firm's demand for labor.
B)the entire industry's demand for labor.
C)the entire economy's demand for labor.
D)None of the choices are correct.

Question 33

When the price of a resource _________, the demand for a complementary resource ___________; when price of a resource _________, the demand for a complementary resource _________.

A)rises, rises; falls, falls
B)rises, falls; falls, falls
C)rises, falls; falls, rises
D)rises, rises; falls, rises

Question 34

Suppose that land and labor are substitute resources. If the wage rate rose, the employment of land would rise only if

A)the output effect outweighed the substitution effect.
B)the substitution effect outweighed the output effect.
C)the substitution effect was equal to the output effect.

Question 35

Which of the following will not cause the demand curve for labor to shift?

A)An increase in the wage rate.
B)An increase in the price of the final product.
C)An increase in the price of a substitute factor of production.
D)A change in demand for the final product.
E)An improvement in technology that produces higher labor productivity.

Question 36

Increases in the productivity of labor tend to

A)increase the marginal revenue product of labor and the wages employers are willing to pay for any given amount of labor.
B)decrease the marginal revenue product of labor and increase the wages employers are willing to pay for any given amount of labor.
C)increase the marginal revenue product of labor but have no effect on the wages employers are willing to pay for any given amount of labor.
D)decrease the marginal revenue product of labor and the wages employers are willing to pay for any given amount of labor.

Question 37

The extra revenue that results from hiring another worker is

A)the marginal revenue of output.
B)the marginal revenue product of labor.
C)the average revenue of output.
D)the marginal input cost.

Question 38

Use the following Table to answer the question :

If this firm were a perfect competitor selling its entire output at a price of $10, the marginal revenue product of the fourth unit of output would be

A)$0.
B)$10.
C)$15.
D)$20.
E)$150.

Question 39

The primary difference between marginal revenue product for the perfect and imperfect competitor is

A)the determination of the output price.
B)the effective use of capital.
C)the differences in calculation of total revenue.
D)the concept of marginal analysis.

Question 40

As output rises,

A)marginal revenue product declines.
B)marginal revenue product stays the same.
C)marginal revenue product rises.
D)there is no way to determine if marginal revenue product will fall, rise, or remain the same.

Question 41

An auto service station has four mechanics. If the marginal revenue product of the fourth worker is $375 per day and the mechanics are paid $150 per day, the firm

A)can make a greater profit by laying off some of the mechanics.
B)can make a higher profit by hiring more mechanics.
C)is maximizing profits.
D)will reduce its profits if it hires more mechanics.

Question 42

The concept of margin, or marginal

A)is central to economics.
B)has little to do with economics.
C)is applied only to a firm's costs.
D)is applied only to a firm's output.

Question 43

If at a firm's current level of employment the marginal revenue product of the last worker employed is less than the marginal cost of labor, the firm should

A)provide more on-the-job training.
B)maintain the existing level of employment.
C)decrease employment.
D)increase employment.

Question 44

Derived demand is a demand for

A)final goods and services.
B)intermediate goods like steel and plastics.
C)resources used only by monopolies.
D)factors of production.

Question 45

Derived demand is a demand for

A)final goods and services.
B)products.
C)resources.
D)goods produced by perfect competitors.
E)goods produced by imperfect competitors.

Question 46

If a firm acquires new machines that complement labor

A)there will be no effect on the marginal product of labor curve.
B)the amount of labor services hired will decrease.
C)the marginal revenue product of labor curve will shift upward.
D)the marginal revenue product of labor curve will shift downward.

Question 47

A technological advance that increases the marginal product of labor will

A)decrease the demand for labor.
B)increase the supply for labor.
C)decrease the supply for labor.
D)increase the demand for labor.

Question 48

An improvement in managerial efficiency in a Fortune 500 corporation increases the marginal revenue product of all people working for the corporation. Assuming that the wage of workers who are hired in a competitive labor market remains constant, the company will

A)fire some workers.
B)hire some workers.
C)neither increase nor decrease the number of workers employed.
D)shut down unless it can lower wages.

Question 49

Use the Table below to answer the question :

The maximum number of machines you would use is

A)4.
B)5.
C)6.
D)7.
E)8.

Question 50

Which of the following offers the best example of derived demand?

A)An increase in the demand for movie tickets causes an increase in the demand for popcorn.
B)An increase in demand for movie tickets causes an increase in the demand for movie theatre workers.
C)A decline in the demand for cars causes an increase in the demand for bus rides.
D)An increase in the demand for cars causes an increase in the demand for gasoline.

Question 51

You operate a shop that repairs TVs and VCRs. The going wage rate in a competitive market for skilled repair people is $18 per hour. Given the current demand for your services, the marginal revenue product of your repair people is $28 per hour.
You should

A)increase the number of repair people working for you.
B)decrease the number of repair people working for you.
C)make no change in the number of people you use.
D)lay off all your employees and do all the work yourself.

Question 52

You operate a shop that repairs TVs and VCRs. The going wage rate in a competitive market for skilled repair people is $18 per hour. Given the current demand for your services, the marginal revenue product of your repair people is $28 per hour.
If you were to employ one more hour of a repair person's services you would

A)increase your profit by $28.
B)increase your profit by $18.
C)increase your profit by $10.
D)not increase your profit at all.
E)decrease your profit.

Question 53

All of the following will increase the demand for labor by firms in an industry except

A)an increase in the price of the product produced by the industry.
B)a decrease in the prices of inputs that substitute for labor.
C)an increase in the marginal product of labor resulting from technological change.
D)an increase in the demand for the product produced by the industry.

Question 54

In a perfectly competitive labor market, when a firm hires more labor

A)wages will increase.
B)wages will decrease.
C)wages will remain the same.

Question 55

Which statement is false?

A)The concept of margin, or marginal is central to economic analysis.
B)Productivity is measured by output per unit of input.
C)MRP declines as more and more units of a factor are used.
D)None of the statements are false.

Question 56

Demand for a factor can shift for all of the following reasons except?

A)Change in demand for the final product
B)Change in the factor's price
C)Change in the price of other factors
D)Change in technology

Question 57

A decrease in the demand for the product produced by an input will

A)increase the supply of the input.
B)decrease the supply of the input.
C)have no effect on the input market.
D)increase the demand for the input.
E)decrease the demand for the input.

Question 58

A firm will hire a unit of input only if its

A)marginal physical product and marginal revenue product are positive.
B)marginal physical product and marginal revenue product are negative.
C)marginal physical product is positive and whose marginal revenue product is negative.
D)marginal physical product is negative and whose marginal revenue product is positive.

Question 59

If a firm's marginal revenue product of labor is $100 and it pays a wage rate of $85,

A)the firm should reduce the wage it pays.
B)the firm is maximizing its profits.
C)the law of diminishing marginal productivity is being observed.
D)the firm can raise its profits by increasing the number of workers.

Question 60

All other things staying the same, an increase in the amount of labor would cause the marginal productivity of capital to

A)remain the same.
B)decrease.
C)increase.
D)increase at a decreasing rate and then remain constant.

Question 61

A firm's demand schedule for capital is

A)the marginal revenue product and marginal physical product schedule for capital.
B)neither the marginal revenue product schedule nor the marginal physical product schedule for capital.
C)the marginal revenue product schedule for capital.
D)the marginal physical product schedule for capital.

Question 62

If a large decrease in the cost of capital leads to a firm increasing the labor it uses

A)then the output effect outweighs the substitution effect.
B)the substitution effect outweighs the output effect.
C)the substitution and output effects are equal.
D)there is no way to determine the relative strengths of the output and substitution effects.

Question 63

Use the following Table to answer the question :

The maximum units of input you would possibly hire is

A)2.
B)3.
C)4.
D)5.
E)6.

Question 64

A decrease in interest rates would

A)increase the demand for capital.
B)decrease the demand for capital.
C)increase the supply of capital.
D)decrease the supply of capital.
E)None of the choices are true.

Question 65

An increase in rent would

A)increase the demand for land.
B)decrease the demand for land.
C)increase the supply of land.
D)decrease the supply of land.
E)None of the choices are correct.

Question 66

All of the following will decrease the demand for labor by firms in an industry except

A)a decrease in the prices of inputs that complement labor.
B)a decrease in the demand for the product produced by the industry.
C)a decrease in the price of the product produced by the industry.
D)a decrease in the prices of inputs that substitute for labor.

Question 67

The substitution effect and the output effect work in the same direction.

A)work in the same direction.
B)work in opposite directions.
C)are independent of one another, having nothing in common.
D)None of these choices are correct.

Question 68

If the wage rate rises and there is a net decrease in the use of capital by a firm

A)the substitution effect outweighed the output effect.
B)the output effect outweighed the substitution effect.
C)the substitution and output effects were equal.
D)there is no way to determine the relative strengths of the output and substitution effects.

Question 69

The demand for labor is called a derived demand because it is derived from the

A)productivity of labor.
B)amount of labor available at different wages.
C)demand for firms' outputs.
D)supply of the firm's products.

Question 70

If sewing machines are considered to be a complement to labor in the production of garments, then an increase in the price of sewing machines will cause

A)the demand curve for labor to shift to the right.
B)the demand curve for labor to shift to the left.
C)a movement along the demand curve for labor.
D)nothing to happen to the demand curve for labor.

Question 71

A firm's demand schedule for labor services

A)is independent of the demand for the firm's output.
B)will not change if technology changes.
C)depends on the amount of other inputs used by the firm.
D)is not related to the price of the firm's output.

Question 72

The demand for a resource rises as

A)its productivity rises and the relative prices of substitutable resources rises.
B)its productivity rises and the prices of substitutable resources falls.
C)its productivity falls and the relative prices of substitutable resources falls.
D)its productivity falls and prices of substitutable resources falls.

Question 73

Use the following Table to answer the question :

If this firm were a perfect competitor selling its entire output at a price of $1, the marginal revenue product of the third unit of input would be

A)$0.
B)$1.
C)$2.
D)$3.
E)$10.

Question 74

An increase in the price of steel will result in

A)a decrease in the prices of automobiles.
B)an increase in the cost of labor to produce automobiles.
C)an increase in the equilibrium quantity of automobiles.
D)a decrease in the supply of automobiles.

Question 75

A profit-maximizing firm hires labor per week up to the point at which

A)the marginal revenue product of labor equals the wage.
B)the marginal revenue product of labor is equal to zero.
C)the marginal revenue product of labor is maximized.
D)the difference between the marginal revenue product and the wage is maximized.

Question 76

A widespread outbreak of Mad Cow disease, which leads to the destruction of thousands of cattle, is likely to

A)put downward pressure on the price of milk.
B)put upward pressure on the price of milk.
C)increase the supply of milk.
D)increase the quantity of milk demanded.

Question 77

If a large increase in the wage rate leads to a net increase in the use of land by a firm, then

A)the substitution effect outweighed the output effect.
B)the output effect outweighed the substitution effect.
C)the substitution and output effects are equal.
D)there is no way to estimate the relative sizes of the substitution and output effects.

Question 78

If a large increase in the wage rate leads to a net increase in the use of capital by a firm, then

A)the substitution effect outweighed the output effect.
B)the output effect outweighed the substitution effect.
C)the substitution and output effects are equal.
D)there is no way to estimate the relative size of the substitution and output effect.

Question 79

All of the following affect the demand for labor by a firm except

A)the amount of labor that will be supplied at different wages.
B)the level of demand for the firm's products.
C)the marginal physical product of the labor.
D)the marginal revenue the firm receives for its products.

Question 80

As lumber becomes more expensive

A)the quantity of lumber demanded will increase.
B)the equilibrium quantity of new houses will decrease.
C)the supply of new houses will increase.
D)None of the choices are correct.