Deck 14: Markets for Factor Inputs

Question 1

An increase in technology that enhances labor productivity will likely result in:

A) a decrease in labor employment and an increase in the wage rate.
B) an increase in labor employment and an increase in the wage rate.
C) a decrease in labor employment and a decrease in the wage rate.
D) an increase in labor employment and a decrease in the wage rate.
E) employers using less labor and more capital while the wage effect is unknown.

Answer 1

an increase in labor employment and an increase in the wage rate.

Question 2

A firm should hire more labor when the marginal revenue product of labor:

A) equals the wage rate.
B) exceeds the wage rate.
C) is less than the wage rate.
D) Any of these can be true.
E) None of these are true.

Answer 2

exceeds the wage rate.

Question 3

When compared to the demand curve for only one variable input, the demand curve for a factor input when several inputs are variable is:

A) less elastic.
B) more elastic.
C) vertical.
D) horizontal.

Answer 3

more elastic.

Question 4

Scenario 14.1:
You are the manager of a firm producing green chalk. The marginal product of labor is:
MP_L = 24L^-1/2
Suppose that the firm is a competitor in the green chalk market. The price of green chalk is $1 per unit. Further suppose that the firm is a competitor in the labor market. The wage rate is $12.00 per hour.
Given the information in Scenario 14.1, what is the marginal revenue product of labor?

A) 0.5L^-1/2
B) 2L^-1/2
C) 12L^-1/2
D) 24L^-1/2

Question 5

In the competitive output market for good Q, the marginal revenue product for an input X can be expressed as:

A) MP_X / TR_Q.
B) MP_Q MR_X.
C) AP_X MR_Q.
D) MP_X ∗ P_Q.

Question 6

If an individual's labor supply curve is backward bending, then:

A) the income effect associated with a higher wage is greater than the substitution effect.
B) the substitution effect associated with a higher wage is greater than the income effect.
C) the substitution effect associated with a higher wage encourages more leisure.
D) A and C
E) B and C

Question 7

If the market for labor is perfectly competitive, the profit maximizing level of labor occurs where:

A) MRP_L < W (the wage).
B) MRP_L = P (the output price).
C) MRP_L just exceeds W.
D) MRP_L = W.
E) none of the above

Question 8

If leisure is a normal good, then the income effect of a decrease in wage will:

A) decrease the number of hours worked.
B) increase the number of hours worked.
C) decrease the number of leisure hours.
D) increase the sum of leisure plus hours worked.

Question 9

A firm purchases a factor of production in a competitive market. At the current purchase rate the MRP of the factor is greater than the marginal expenditure for the factor. Thus, the firm:

A) can increase profit by reducing the employment of the factor of production.
B) is now maximizing profit.
C) should not use this factor of production because it has no potential in generating a profit.
D) can increase profit by expanding the employment of the factor of production.

Question 10

If only one firm in an industry could take advantage of a reduced wage and all other firms continue paying the old wage, how would one best describe the one firm's reaction to this reduced wage assuming labor is the only variable input? The marginal revenue product of labor curve:

A) would remain unchanged, and the firm would hire more labor at the lower wage.
B) shifts to the left, and the firm hires more labor at the lower wage on the new curve.
C) shifts to the right, and the firm hires more labor at the lower wage on the new curve.
D) shifts to the left, and the firm hires less labor at the lower wage on the new curve.
E) shifts to the right, and the firm hires less labor at the lower wage on the new curve.

Question 11

Scenario 14.1:
You are the manager of a firm producing green chalk. The marginal product of labor is:
MP_L = 24L^-1/2
Suppose that the firm is a competitor in the green chalk market. The price of green chalk is $1 per unit. Further suppose that the firm is a competitor in the labor market. The wage rate is $12.00 per hour.
Given the information in Scenario 14.1, how much labor will be hired to maximize profit?

A) 1/16
B) 1/2
C) 1
D) 4

Question 12

Under what circumstances are the marginal expenditure for an input and the average expenditure always equal? Where there is a:

A) competitive buyer.
B) competitive seller.
C) monopoly buyer.
D) monopoly seller.

Question 13

When the factor market is purely competitive, the firm's average expenditure curve for a factor of production is:

A) upward sloping and to the right of the marginal expenditure curve.
B) downward sloping and to the right of the marginal expenditure curve.
C) identical to the marginal expenditure curve.
D) downward sloping and to the left of the marginal expenditure curve.

Question 14

The substitution effect of a decrease in the wage will:

A) decrease leisure, regardless of whether leisure is a normal or inferior good.
B) increase leisure, regardless of whether leisure is a normal or inferior good.
C) increase leisure only if leisure is a normal good.
D) decrease leisure only if leisure is a normal good.

Question 15

Figure 14.1.1
Refer to Figure 14.1.1 above. The figure shows the firm's demand curve with variable capital. The shift in the marginal revenue product curve is caused by:

A) an increase in capital.
B) a decrease in capital.
C) an increase in the wage rate.
D) a decrease in the wage rate.

Question 16

What can account for the negative slope of the marginal revenue product curve?

A) Diminishing marginal utility
B) Diminishing marginal returns
C) Monopsony power
D) All workers eventually begin slacking.
E) none of the above

Question 17

The marginal revenue product of labor is equal to:

A) MP_L / P.
B) MP_L ∗ MR.
C) MP_L / MR.
D) MR / MP_L.

Question 18

The marginal revenue product can be expressed as the:

A) additional revenue received from selling one more unit of product.
B) increment to revenue received from one additional unit of input hired.
C) marginal physical product of an input times the average revenue received from the sale of the product.
D) average physical product of the input times the marginal revenue received from the sale of the final product.

Question 19

Assume that labor and capital are complements in production and that the wage declines. Which of the following statements best describes the adjustment in the use of labor?

A) Adjustments in labor use are not influenced by adjustments in capital use.
B) The MRP_L curve shifts downward in this case.
C) More labor is used both because of the reduced wage and increased use of capital.
D) Changes in labor use are indeterminate because the reduced wage and reduced use of capital have opposite influences on the use of labor.

Question 20

Figure 14.1.1
Other things being equal, the marginal revenue product (MRP) curve for a competitive seller:

A) lies below the MRP curve for a monopolist.
B) is identical to the MRP curve for a monopolist.
C) lies above the MRP curve for a monopolist.
D) is upward sloping whereas a monopolist has a downward sloping MRP curve.

Question 21

Use the following statements to answer this question: I. Under profit maximization, the quantity of labor used in production is optimal if MR = w/MP_L.
II) The expression MR = w/MPL implies that the revenue earned from the last unit of output produced equals the marginal cost of the last unit of output.

A) I and II are true.
B) I is true and II is false.
C) II is true and I is false.
D) I and II are false.

Question 22

Figure 14.1.2
Assume that as the wage rate rises a worker's substitution effect for leisure is larger than the income effect. We can conclude that in this region, the worker's:

A) labor supply curve will be backward bending.
B) labor supply curve will have the usual upward slope.
C) labor supply curve will be completely inelastic.
D) supply curve will be horizontal.

Question 23

Figure 14.1.2
Refer to Figure 14.1.2 above. Which of these two effects prevails in the backward bending portion of the supply curve?

A) The income effect
B) The substitution effect
C) The leisure effect
D) The wage effect

Question 24

Suppose a firm has one variable input, labor. Why is the MRP_L curve for a competitive firm above the MRP_L curve for a monopolist?

A) Without competition from other firms, monopolies are less efficient and the marginal product of labor is lower at each level of output.
B) Although the marginal product of labor may be the same under both market structures, the marginal revenue of the monopoly declines with output.
C) Monopolists have less incentive to invest in worker training and other methods for improving labor productivity, so the marginal product of labor is lower in the monopoly case.
D) none of the above

Question 25

The Acme Company is a perfect competitor in its input markets and a monopolist in its output market. The marginal product of labor is 20 and the price of Acme's output is $10. For Acme Company, the marginal revenue product of labor is:

A) less than $10.
B) $10.
C) $20.
D) less than $200.
E) $200.

Question 26

Electric power utility companies use various fuel sources (e.g., coal, natural gas, nuclear) to generate electricity for their customers. What happens to the demand for natural gas used to generate electricity as we move from a short-run planning horizon to a long-run planning horizon? Why?

A) Demand becomes more inelastic over time because the other fuel sources become more scarce, so there are fewer options available for electric power utilities in the long run.
B) Demand becomes more inelastic over time because all of the power generation plants tend to choose the same technology, which makes the industry less responsive to prices in the long run.
C) Demand becomes more elastic over time because the electric plant's technology becomes obsolete, and the power company has less flexibility to adjust to changes.
D) Demand becomes more elastic over time because the power companies have more options available and can adopt new generating technologies or substitutes for natural gas over the long run.

Question 27

Suppose labor and capital are variable inputs. The wage rate is $20 per hour, the marginal product of labor is 30 units, the rental rate of capital is $100 per machine hour, and the marginal product of capital is 150 units. If the wage rate declines to $15 per hour, the firm employs more labor and the marginal product of labor declines to 20 units. Assuming the rental rate of capital remains the same, what happens to the amount of capital used by the firm?

A) Decreases
B) Increases
C) No change
D) We do not have enough information to answer this question.

Question 28

The Acme Company is a perfect competitor in its input markets and a monopolist in its output market. Its average product of labor is 30, the marginal product of labor is 20, the price of labor is $20, and the price of the output is $5. For Acme Company, the marginal revenue product of labor:

A) is $100.
B) is $150.
C) is $400.
D) is $600.
E) cannot be determined with the information provided.

Question 29

Let P be the output price for a particular good. Why is the value P*MP_L greater than MRP_L for a monopolist?

A) The monopolist is not as technically efficient as firms operating under perfect competition.
B) The monopolist hires less labor, so MP_L is higher under a monopoly than under perfect competition.
C) The monopolist sets a price that is higher than MR.
D) A and C are correct.
E) B and C are correct.

Question 30

Labor is typically assumed to be the only variable input in very short-run production systems, and the number of variable inputs increases as we lengthen our planning horizon from short run to long run. What happens to the labor demand curve as we move from short run to long run?

A) Demand curve becomes less elastic.
B) Demand curve elasticity does not change.
C) Demand curve becomes more elastic.
D) Demand curve becomes upward sloping.

Question 31

The Acme Company is a perfect competitor in its input markets and its output market. Its average product of labor is at its maximum and equals 30. The marginal revenue product of labor is $300. The price of its output:

A) is $0.10.
B) is $10.
C) is $9,000.
D) cannot be determined without more information.

Question 32

Figure 14.1.3
A consumer's original utility maximizing combination of income and leisure is shown in the diagram above as point A. After a wage increase, the consumer's utility maximizing combination changes to point C.
Refer to Figure 14.1.3. The income effect of the wage increase on the amount of hours of leisure is:

A) L₀ to L₂.
B) L₀ to L₁.
C) L₁ to L₂.
D) L₂ to L₁.
E) none of the above

Question 33

Figure 14.1.4
A consumer's original utility maximizing combination of income and leisure is shown in the diagram above as point A. After a wage decrease, the consumer's utility maximizing combination changes to point C.
Refer to Figure 14.1.4 above. The substitution effect of the wage decrease on the amount of hours of leisure is:

A) L₁ to L₀.
B) L₀ to L₁.
C) L₁ to L₂.
D) L₂ to L₀.
E) none of the above

Question 34

The marginal product of labor for Acme, Inc. is 15. The average product of labor is 25, and the price of labor is $10. Assuming that Acme, Inc. is a competitor in its output and input markets, the marginal revenue product of labor:

A) is $10.
B) is $150.
C) is $250.
D) is $375.
E) cannot be determined with the information provided.

Question 35

Figure 14.1.3
A consumer's original utility maximizing combination of income and leisure is shown in the diagram above as point A. After a wage increase, the consumer's utility maximizing combination changes to point C.
Refer to Figure 14.1.3 above. The substitution effect of the wage increase on the amount of hours of leisure is:

A) L₁ to L₀
B) L₁ to L₂.
C) L₀ to L₂.
D) L₀ to L₁.
E) none of the above

Question 36

If the firms in an industry could take advantage of a reduced wage, how would one best describe the firms' demand for labor? The MRP_L:

A) schedule would remain unchanged, and the firms would hire more labor at the lower wage.
B) schedule would shift to the left and the firms would move down the new schedule.
C) schedule would shift to the right and the firms would move down the new schedule.
D) none of the above

Question 37

Figure 14.1.4
A consumer's original utility maximizing combination of income and leisure is shown in the diagram above as point A. After a wage decrease, the consumer's utility maximizing combination changes to point C.
Refer to Figure 14.1.4 above. The income effect of the wage decrease on the amount of hours of leisure is:

A) L₀ to L₁.
B) L₀ to L₂.
C) L₁ to L₂.
D) L₂ to L₁.
E) none of the above

Question 38

The industry demand curve for labor is the:

A) horizontal sum of individual firm labor demand curves.
B) vertical sum of individual firm demand curves.
C) representative firm's demand curve multiplied by the number of firms.
D) none of the above

Question 39

The Acme Company is a perfect competitor in its input markets and its output market. Its average product of labor is 30, the marginal product of labor is 20, the price of labor is $20, and the price of the output is $5. For Acme Company, the marginal revenue product of labor:

A) is $100.
B) is $150.
C) is $400.
D) is $600.
E) cannot be determined with the information provided.

Question 40

Suppose labor and capital are variable inputs. The wage rate is $20 per hour, the marginal product of labor is 30 units, the rental rate of capital is $100 per machine hour, and the marginal product of capital is 150 units. If the wage rate declines to $15 per hour, the firm employs more labor and the marginal product of labor declines to 20 units. Assuming the rental rate of capital remains the same, what is the marginal product of capital at the new optimal level of input usage?

A) 100 units
B) 133 units
C) 150 units
D) We do not have enough information to answer this question.

Question 41

The table below shows a firm's output per day for zero through six workers.
Q L
0 0
46 1
84 2
114 3
136 4
150 5
156 6
The firm's demand and marginal revenue curves are:
P = 50 - 0.125Q MR = 50 - 0.25Q,
where Q = daily sales, and P = output price.
a. Determine the marginal product of labor for one through six workers.
b. Determine the firm's marginal revenue product.
c. How many workers should the firm hire if total wage costs including fringe benefits are $30 per hour? (Each worker is employed for eight hours per day.)

Question 42

Suppose the labor market is perfectly competitive, but the output market is not. When the labor market is in equilibrium, the wage rate will:

A) be less than price times the marginal product of labor.
B) equal price times the marginal product of labor.
C) be greater than price times the marginal product of labor.
D) None of the above is necessarily correct.

Question 43

Figure 14.2.1
Refer to Figure 14.2.1 above. The value of marginal product (VMP_L), or value of a marginal worker equals the wage rate,

A) in panel (a).
B) in panel (b).
C) in both panels.
D) in neither panel.

Question 44

Which of the following is NOT true about the supply of labor to the firm in a competitive labor market?

A) It is horizontal.
B) It is perfectly elastic.
C) It is equal to the marginal expenditure curve.
D) It is upward sloping.

Question 45

All of the payment to a factor of production will be economic rent when the factor of production has:

A) an infinitely inelastic supply curve.
B) an infinitely elastic supply curve.
C) a constant, unit elastic supply curve.
D) an infinitely inelastic demand curve.

Question 46

Suppose the labor market is perfectly competitive, but the output market is not. When the labor market is in equilibrium, the wage rate will:

A) be less than the marginal revenue product of labor.
B) equal the marginal revenue product of labor.
C) be greater than the marginal revenue product of labor.
D) None of the above is necessarily correct.

Question 47

Under what circumstances will the economic rent earned by a factor of production always be zero?

A) Infinitely inelastic supply curve
B) Infinitely elastic supply curve
C) Somewhat inelastic supply curve
D) Elastic demand curve

Question 48

Clarke Mementos manufactures small figurines that they sell to retailers around the country. Clarke sells the figurines for $5.00 each, a price the firm considers given. Clarke's production function is given by the expression:
Q = 60L - 0.5L²,
where Q = number of figurines per day, and L = number of skilled workers per day. Based on this production function, the average and marginal products of labor are as follows:
AP = 60 - 0.5L MP = 60 - L
a. Write an expression for the firm's marginal revenue product.
b. Clarke currently pays $150 per day (including fringe benefits) for each of its skilled workers. How many workers should the firm employ?
c. Clarke's workers are highly skilled artisans with a great deal of job mobility. The firm's managers fear that they must increase the workers' total compensation to $200 per day to remain competitive. What impact would the wage increase have upon the firm's employment?

Question 49

Figure 14.2.1
Refer to Figure 14.2.1 above. Which of the following statements is correct?

A) Because the value of marginal product is higher than the wage rate for the firm in panel (b), the firm hires more workers than the firm in panel (a).
B) Because the value of marginal product is higher than the wage rate for the firm in panel (b), the firm hires less workers than the firm in panel (a).
C) Because the value of marginal product is higher than the wage rate for the firm in panel (a), the firm hires less workers than the firm in panel (a).
D) Because the value of marginal product is higher than the wage rate for the firm in panel (a), the firm hires more workers than the firm in panel (a).

Question 50

Figure 14.2.1
Refer to Figure 14.2.1 above. The firm in panel (b) pays a wage equal to:

A) w₁.
B) w₂.
C) the wage paid by the firm in the competitive labor market in panel (a).
D) the price of the product.

Question 51

Figure 14.2.2
Refer to Figure 14.2.2 above. Along the supply curve, up to point A, some workers would have worked for less than the going wage rate. This concept is represented by:

A) Area B.
B) Area C.
C) the rectangle (w* × L*).
D) none of the above

Question 52

Figure 14.2.2
Refer to Figure 14.2.2 above. Which of the following equals economic rent?

A) The wage rate corresponding to point A on the graph
B) Area B
C) Area C
D) The rectangle (w* × L*)

Question 53

What happens to the marginal revenue product curve of a factor as more of a complementary factor is hired?

A) It shifts to the left, because its marginal product decreases.
B) It shifts to the left, because its marginal product increases.
C) It shifts to the right, because its marginal product decreases.
D) It shifts to the right, because its marginal product increases.

Question 54

In general, does the demand for labor become more or less elastic as we increase the number of other variable inputs used in a production process?

A) More elastic
B) No change in elasticity
C) Less elastic
D) We cannot answer this question without more information about the other inputs.

Question 55

In a competitive labor market, with one variable factor, the supply of labor to the firm is:

A) equal to the marginal expenditure curve.
B) equal to the demand curve for labor.
C) greater than the marginal expenditure curve.
D) equal to the marginal revenue product curve.

Question 56

Under an upward sloping supply curve for land, the economic rents to land ________ as the demand for land shifts rightward.

A) decrease
B) increase
C) remain the same
D) We do not have enough information to answer this question.

Question 57

Suppose a competitive industry produces output, Q, using some input, i, where the price of the output is P_Q and the input price is P_i. Efficient use of resources requires that:

A) MRP_i = MP_i.
B) MRP_i = Mp_i/P_Q.
C) MRP_i = MP_i P_Q.
D) MRP_i = P_i.

Question 58

Use the data in the table below to answer the following questions about a firm.
Units of Units of Total Marginal Output
Input X Input Y Product Product of X Price
0 25 0 $10
1 25 2 10
2 25 7 10
3 25 14 10
4 25 20 10
5 25 23 10
6 25 24 10
a. Complete the table by calculating the marginal product of input X.
b. Compute the marginal revenue produce of input X.
c. If the price of input X were $30 per unit, how many units should the firm use per unit of time to maximize profit? Explain why profit is maximized.

Question 59

Suppose the labor market and all output markets are perfectly competitive. When the labor market is in equilibrium, the wage rate will:

A) be less than the marginal revenue product of labor.
B) equal the marginal revenue product of labor.
C) be greater than the marginal revenue product of labor.
D) None of the above is necessarily correct.

Question 60

Under an infinitely inelastic supply of land, the economic rents to land ________ if the price of land doubles.

A) increase by less than 100%
B) double
C) increase by more than 100%
D) none of the above

Question 61

Suppose the supply of land is infinitely inelastic and the demand for land is downward sloping but inelastic at the current equilibrium. If the supply curve shifts rightward (e.g., previously unusable land is cleared for production), what happens to the aggregate economic rents in this market?

A) Decrease
B) Increase
C) Remain the same
D) We do not have enough information to answer this question.

Question 62

Firefighters are highly skilled workers who are typically employed by city governments. If a city reduces the wage rate paid to firefighters to be less than the equilibrium wage rate, what happens to the economic rents earned by the firefighters?

A) Increase
B) Decrease
C) Remain unchanged
D) Public employees like firefighters cannot earn economic rents.

Question 63

Suppose the supply of farmland is infinitely inelastic and the demand for land is downward sloping but inelastic at the current equilibrium. If the supply curve shifts leftward (e.g., some farmland is permanently converted to other uses), what happens to the aggregate economic rents in this market?

A) Decrease
B) Increase
C) Remain the same
D) We do not have enough information to answer this question.

Question 64

Suppose the local market for legal services has an upward sloping supply curve, P_L = 150 + 0.0001Q_L where P_L is the price of legal services and Q_L is the number of hours of legal services. If the equilibrium price of legal services is $250 per hour and the average number of hours that a lawyer works per year is 2,500, what is the average economic rent earned per lawyer in this market?

A) $10,000
B) $20,000
C) $50,000
D) $1,000,000

Question 65

The marginal expenditure curve for labor is based on the assumption that:

A) the most productive workers are hired first.
B) the wage rate is independent of the quantity of labor employed.
C) the market supply curve for labor is infinitely elastic.
D) all workers are paid the same wage rate.
E) none of the above

Question 66

For a monopsony buyer of an input, the marginal expenditure curve:

A) lies above the average expenditure curve.
B) lies below the average expenditure curve.
C) is identical to the average expenditure curve.
D) lies below the input demand curve.

Question 67

Figure 14.3.1
Refer to Figure 14.3.1 above. The price paid in this market equals:

A) w₁.
B) w₂.
C) w₃.
D) the same as the competitive price.

Question 68

In some markets plumbers have a choice of joining unions or working as nonunion plumbers. The total short-run supply of plumbers is perfectly inelastic at 500 workers per day. The demands for nonunionized and unionized plumbers, respectively, are:
W_NU = 30 - 0.04L W_U = 30 - 0.10L.
The wage rate is W in $/hr. and the number of workers per day is L.
a. Determine the total demand for plumbers.
b. Calculate the total market wage rate of plumbers assuming that unionized and nonunionized plumbers get the same wage rate.
c. If the unionized workers succeeded in getting their wage increased to $20.00 per hour, how many unionized workers would lose their jobs?
d. If the unionized workers in (c) who lost their jobs take jobs as non-unionized workers, how much and in what direction would non-unionized wages change?

Question 69

The market for production workers in a Midwestern metropolitan area is highly competitive. The market supply and demand curves for production workers are given as:
L_S = -2500 + 1000W L_D = 10500 - 625W,
where L_D = labor demand is full time workers per hour,
L_S = labor supply is full time workers per hour, and W = hourly wage. White Manufacturing Co. employs production workers in the manufacture of bearings for skate boards. The firm's production function is given by the expression:
Q = 88.8L - 0.5L²,
where Q = output, measured as boxes of bearings per hour, and L = number of workers employed per hour. From this production function, the marginal product and average product of labor are:
MP = 88.8 - L AP = 88.8 - 0.5L
White currently sells bearings for $10 per box.
a. Determine the equilibrium wage and level of employment in the market. Calculate the total rent that is being earned by workers.
b. Determine the number of workers that White Manufacturing would employ at the wage determined in part (a). What total output will White produce?

Question 70

Which of the following statements is TRUE when comparing monopsony and competitive labor markets?

A) The monopsony hires more workers but pays a lower wage.
B) The monopsony hires more workers at a higher wage.
C) The monopsonist's wage is lower and quantity of labor higher than would prevail under competition.
D) The monopsonist's wage and quantity of labor are lower than would prevail under perfect competition.

Question 71

In the United States, major league baseball is exempt from antitrust laws. Before 1975, the baseball team owners agreed to hold an annual draft of amateur baseball players. Once the players were drafted and signed by a team, they were effectively tied to that team for life. This allowed baseball owners to operate like ________ in the market for player services.

A) perfect competitors
B) monopolistic competitors
C) a monopsonistic cartel
D) a monopoly

Question 72

In the United States, major league baseball is exempt from antitrust laws. Before 1975, the baseball team owners agreed to hold an annual draft of amateur baseball players. Once the players were drafted and signed by a team, they were effectively tied to that team for life. Before 1975, professional baseball players were paid:

A) less than their marginal revenue product.
B) their marginal revenue product.
C) more than their marginal revenue product.
D) none of the above is necessarily correct.

Question 73

Suppose the supply and demand of land for natural gas extraction are imperfectly elastic. Given that coal is a potential substitute for natural gas in energy applications, a change in the price of coal may shift the demand curve for natural gas. What happens to the economic rents assigned to land on which natural gas is extracted if the price of coal declines?

A) Rents increase.
B) Rents are positive and remain unchanged.
C) Rents decrease.
D) Rents are zero before and after the change.

Question 74

The following expressions describe a perfectly competitive labor market. The labor supply curve is:
S_L = AE = $3.00 + $0.000375L.
The marginal revenue product of labor curve is:
MRP_L = $13.00 - 0.000433L.
a. Find the equilibrium wage in this labor market. Also, find the optimal number of labor hours worked per week. Let L represent the number of labor hours worked per week, and let W represent the hourly wage of workers.
b. Determine the economic rent earned by labor in this situation.

Question 75

In a competitive labor market, the supply of labor curve is expressed as:
AE = $5 + 0.0025L,
where AE represents the average expenditure ($/unit) and L represents units of labor hired per unit of time. The demand for labor is based on the following expression:
MP = 5 - 0.001L,
where MP represents marginal product of labor. Revenue from the final good is $5 per unit sold in a competitive market.
a. Determine the equilibrium wage rate and labor employment rate.
b. Compute the economic rent earned by labor.

Question 76

Figure 14.3.1
Refer to Figure 14.3.1 above. The marginal expenditure lies above the average expenditure because:

A) the buyer of the input has monopoly power .
B) the seller of the input has monopoly power.
C) the buyer of the input has monopsony power.
D) the seller of the input has monopsony power.

Question 77

Figure 14.3.1
Refer to Figure 14.3.1 above. The quantity traded in this market equals:

A) L₁.
B) L₂.
C) the same as the competitive quantity.
D) Depends on the wage rate.

Question 78

Figure 14.3.1
Refer to Figure 14.3.1 above. Which of the following statements is consistent with the relationship between average and marginal expenditure?

A) The decision to sell an extra unit raises the price that can be obtained for all units, not just for the last one.
B) The decision to buy an extra unit raises the price that must be paid for all units, not just for the last one.
C) The price that must be paid is the same for all units purchased.
D) The price that can be obtained is the same for all units sold.

Question 79

Which of the following is TRUE concerning equilibrium in a monopsonistic factor market?

A) The firm uses the efficient level of the input but does not maximize profit.
B) The firm maximizes profit but does not use the efficient level of the input.
C) The firm maximizes profit and uses the efficient level of the input.
D) The firm either maximizes profit or uses the efficient level of the input, but it cannot do both at the same time.

Question 80

Suppose the local market for legal services has an upward sloping supply curve, P_L = 150 + 0.0001Q_L where P_L is the price of legal services and Q_L is the number of hours of legal services. If the equilibrium price of legal services is $250 per hour, what is the aggregate economic rent earned by lawyers in this market?

A) $50,000
B) $1,000,000
C) $50,000,000
D) $100,000,000