Deck 27: A: Factor Markets

Question 1

Rabelaisian Restaurants has a monopoly in the town of Upper Glutton.Its production function is Q =40L,where L is the amount of labor it uses and Q is the number of meals produced.In order to hire L units of labor,Rabelaisian Restaurants must pay a wage of 40 + .1L per unit of labor.The demand curve for meals at Rabelaisian Restaurants is given by P=5.25 - Q/1,000.The profit-maximizing output for Rabelaisian Restaurants is

A) 2,000 meals.
B) 4,000 meals.
C) 500 meals.
D) 0 meals.
E) 250 meals.

Answer 1

2,000 meals.

Question 2

A monopsonist's market power enables him to hire labor at a marginal cost that is lower than the wage rate.

Answer 2

False

Question 3

For a monopsonist,the more elastic the supply of labor,the greater the difference between the marginal cost of labor and the wage rate.

Answer 3

False

Question 4

The labor supply curve faced by a large firm in a small city is given by w = 60 + 0.05L,where L is the number of units of labor per week hired by the large firm and w is the weekly wage rate that it pays.If the firm is currently hiring 1,000 units of labor per week,then the marginal cost of a unit of labor to the firm

A) equals the wage rate.
B) is twice the wage rate.
C) equals the wage rate plus $100.
D) equals the wage rate plus $50.
E) equals the wage rate plus $150.

Question 5

A coal producer has a monopoly on coal.A different monopoly controls the railroad that takes the coal to market.Each monopolist chooses prices to maximize its profits.If the coal monopolist buys the railroad,then it will increase its profits by raising the market price of coal.

Question 6

If a monopolist faces a competitive labor market,it will hire labor up to the point where the price of output times the marginal product of labor equals the wage rate.

Question 7

If a monopsonist pays the wage rate w,then the amount of labor that he can hire is L(w)= Aw,where A is a positive constant.The marginal cost of labor to the monopsonist is

A) equal to the wage rate.
B) twice the wage rate.
C) half the wage rate.
D) greater than the wage rate but less than twice as great.
E) less than the wage rate but more than half as great.

Question 8

Suppose that the demand curve for mineral water is given by p = 70 - 12q,where p is the price per bottle paid by consumers and q is the number of bottles purchased by consumers.Mineral water is supplied to consumers by a monopolistic distributor who buys from a monopolistic producer,who is able to produce mineral water at zero cost.The producer charges the distributor a price of c per bottle.Given his marginal cost of c per unit,the distributor chooses an output to maximize his own profits.Knowing that this is what the distributor will do,the producer sets his price c so as to maximize his revenue.The price paid by consumers under this arrangement is

A) $17.50.
B) $35.
C) $5.83.
D) $52.50.
E) $2.92

Question 9

The bauble industry is competitive with free entry.There is a fixed-coefficient technology.One unit of labor and one unit of plastic are required for each bauble.Workers in the bauble industry must all belong to the Bauble-Makers Union.The union sets the wage that will be paid to all bauble makers.The price of plastic is 10 dollars per unit and the demand function for baubles is 1,000 - 10p.Long-run equilibrium requires that the price of baubles equals the cost of production.The wage per unit of labor that maximizes total revenue of workers is

A) 100 dollars.
B) 10 dollars.
C) 45 dollars.
D) 20 dollars.
E) infinity.

Question 10

A monopsony occurs when two previously competing firms reach an agreement to collude on price.

Question 11

A monopolist produces a good using only one factor,labor.There are constant returns to scale in production,and the demand for the monopolist's product is described by a downward-sloping straight line with slope 21.The monopolist faces a horizontal labor supply curve.If the monopolist chooses output to maximize profits,then the marginal

A) cost of labor to the monopolist exceeds the wage.
B) product of labor times the price of output equals the wage.
C) product of labor times the price of output is less than the wage.
D) product of labor times the price of output exceeds the wage.
E) revenue product of labor is less than the wage.

Question 12

The labor supply curve faced by a large firm in a small city is given by w =60 + 0.08L,where L is the number of units of labor per week hired by the large firm and w is the weekly wage rate that it pays.If the firm is currently hiring 1,000 units of labor per week,then the marginal cost of a unit of labor to the firm

A) is twice the wage rate.
B) equals the wage rate.
C) equals the wage rate plus $160.
D) equals the wage rate plus $80.
E) equals the wage rate plus $240.

Question 13

Suppose that the demand curve for mineral water is given by p =40 -2q,where p is the price per bottle paid by consumers and q is the number of bottles purchased by consumers.Mineral water is supplied to consumers by a monopolistic distributor who buys from a monopolistic producer,who is able to produce mineral water at zero cost.The producer charges the distributor a price of c per bottle.Given his marginal cost of c per unit,the distributor chooses an output to maximize his own profits.Knowing that this is what the distributor will do,the producer sets his price c so as to maximize his revenue.The price paid by consumers under this arrangement is

A) $30.
B) $3.33.
C) $20.
D) $10.
E) $1.67.

Question 14

The frangle industry is a monopoly,with a demand curve 100 - p,where p is the price of frangles.It takes one unit of labor and no other inputs to produce a frangle.The Frangle-Makers Guild is a strong union.The guild sets a wage and prevents anyone from working for less than that wage.The frangle monopoly must pay that wage but can hire as much labor as it chooses to.If the guild chooses a wage so as to maximize the total earnings (wage times number of units of labor hired)of frangle makers,then

A) the price of frangles will be $50.
B) the price of frangles will be $25.
C) the price of frangles will equal the wage rate.
D) the wage rate will be $25.
E) the wage will be $50.

Question 15

If an upstream monopolist sells to a downstream monopolist,the price to consumers will be higher than the competitive price but not so high as it would be if the downstream monopolist took control of the upstream monopolist's business and ran both the upstream and downstream markets to maximize total profits.

Question 16

If a labor market is dominated by a monopolist,it is possible that the imposition of a minimum wage law could increase the amount of employment in that market.

Question 17

For a monopsonist,the supply curve of a factor of production is less steep than the marginal cost curve.

Question 18

The labor supply curve faced by a large firm in a small city is given by w = 160+0.02L,where L is the number of units of labor per week hired by the large firm and w is the weekly wage rate that it pays.If the firm is currently hiring 1,000 units of labor per week,then the marginal cost of a unit of labor to the firm

A) equals the wage rate plus $40.
B) equals the wage rate plus $20.
C) equals the wage rate.
D) is twice the wage rate.
E) equals the wage rate plus $60.

Question 19

Suppose that the demand curve for mineral water is given by p = 50-16q,where p is the price per bottle paid by consumers and q is the number of bottles purchased by consumers.Mineral water is supplied to consumers by a monopolistic distributor who buys from a monopolistic producer,who is able to produce mineral water at zero cost.The producer charges the distributor a price of c per bottle.Given his marginal cost of c per unit,the distributor chooses an output to maximize his own profits.Knowing that this is what the distributor will do,the producer sets his price c so as to maximize his revenue.The price paid by consumers under this arrangement is

A) $3.13.
B) $12.50.
C) $37.50.
D) $25.
E) $1.56.

Question 20

A monopolist who faces a horizontal labor supply curve will demand less labor than he would if he acted competitively.

Question 21

Rabelaisian Restaurants has a monopoly in the town of Upper Glutton.Its production function is Q =10L,where L is the amount of labor it uses and Q is the number of meals produced.In order to hire L units of labor,Rabelaisian Restaurants must pay a wage of 10 + .1L per unit of labor.The demand curve for meals at Rabelaisian Restaurants is given by P= 41-Q/1,000.The profit-maximizing output for Rabelaisian Restaurants is

A) 2,000 meals.
B) 20,000 meals.
C) 2,500 meals.
D) 10,000 meals.
E) 1,250 meals.

Question 22

Rabelaisian Restaurants has a monopoly in the town of Upper Glutton.Its production function is Q =40L,where L is the amount of labor it uses and Q is the number of meals produced.In order to hire L units of labor,Rabelaisian Restaurants must pay a wage of 120 +.1L per unit of labor.The demand curve for meals at Rabelaisian Restaurants is given by P= 24.25 - Q/1,000.The profit-maximizing output for Rabelaisian Restaurants is

A) 10,000 meals.
B) 1,000 meals.
C) 2,500 meals.
D) 20,000 meals.
E) 1,250 meals.

Question 23

This comes from an actual newspaper story.The average price of a home in W County rose more than 12% last year but the number of sales fell nearly 15%.Its the old law of supply and demand,said a spokesman for the Board of Realtors.The number of sales is down because there's a higher demand for properties but there isn't a corresponding number to sell.
a.What does the old law of supply and demand predict would happen to price and quantity if the demand curve shifts outward and the supply curve does not change?
b.Draw a diagram to illustrate the case of a shift in demand and/or supply curves that is consistent with the observed change in prices and quantities.