Question 1

A firm will hire additional units of any input up to the point where

Accepted Answer

A)  the marginal productivity of the input is maximized. 
B)  the marginal cost of employing the input is minimized. 
C)  the expense of employing the last unit is equal to the revenue brought in by the last unit. 
D)  the revenue brought in by the input is maximized.

Question 2

The notion that when the price of an input falls,a firm's marginal cost curve shifts down and overall production increases so that more of every input is employed is known as

Accepted Answer

A)  the output effect. 
B)  the substitution effect. 
C)  the input effect. 
D)  the cost effect.

Question 3

Suppose a firm is a monopolist in its output market and a perfect competitor in its input market.The demand for its output is   
 .The firm's production is given by  and the market wage is $50.The marginal product of labor is

Accepted Answer

A)   
B)   
C)   
D)

Question 4

An input's marginal revenue product is given by

Accepted Answer

A)  the input's marginal expense times marginal revenue. 
B)  the input's marginal expense times the input's marginal physical productivity. 
C)  marginal revenue times the number of units employed. 
D)  the input's marginal physical productivity times marginal revenue of the firm's output.

Question 5

A profit-maximizing firm will never hire that quantity of a factor of production for which that factor has an increasing marginal productivity because

Accepted Answer

A)  it would not be maximizing output. 
B)  it would not be maximizing the productivity of labor. 
C)  it would not be minimizing costs. 
D)  it would not be maximizing profits.

Question 6

If a firm is a price taker in the input market but not in the output market,its marginal value product of labor

Accepted Answer

A)  exceeds the marginal revenue product of labor. 
B)  equals its marginal revenue product of labor. 
C)  is less than the marginal revenue product of labor. 
D)  equals the marginal physical product of labor.

Question 7

The output effect of a change in the wage rate on a firm's demand for labor input will be greater

Accepted Answer

A)  the larger the share of labor costs in total costs and the greater the price elasticity of demand for output. 
B)  the larger the share of labor costs in total costs and the smaller the price elasticity of demand for output. 
C)  the larger the share of labor costs in total costs and the higher the quantity demanded. 
D)  the smaller the possibilities of substituting capital for labor.

Question 8

If the price of an input falls,a firm would increase the use of that input for two reasons:

Accepted Answer

A)  The input is now more productive, and the firm can substitute this input for other relatively more expensive inputs. 
B)  The input is now more productive, and overall production costs are now lower, meaning a firm may choose to increase production. 
C)  Overall production costs are now lower and the firm can substitute this input for other relatively more expensive inputs. 
D)  Overall production costs are now lower and the firm will have more of other inputs to use with the one in question.

Question 9

If an individual's supply of labor curve is positively sloped throughout,then

Accepted Answer

A)  the substitution effect always dominates the income effect. 
B)  the income effect always dominates the substitution effect. 
C)  the substitution effect dominates at low real wage levels and the income effect dominates at high real wage levels. 
D)  the income effect dominates at low real wage levels and the substitution effect dominates at high real wage levels.

Question 10

Suppose Woody Chuck's business is to clear trees for housing developments.Given the constraints of fixed capital,the production function is  .Suppose Woody Chuck's is one of many firms clearing land and that the market price per cleared lot is $5000.(Note  )How many workers will Woody Chuck hire at w = 6.25?

Accepted Answer

A)  1 
B)  4 
C)  16 
D)  25

Question 11

A price discriminating monopsonist could increase its profits by

Accepted Answer

A)  paying the minimum wages possible. 
B)  hiring as little capital as possible. 
C)  paying lower wages to workers with inelastic supply of labor curves than to workers with elastic curves. 
D)  paying lower wages to workers with elastic supply of labor curves than to workers with inelastic curves.

Question 12

The substitution effect of a change in wage rate on a firm's demand for labor input will be more significant

Accepted Answer

A)  the greater the change in output. 
B)  the more sharply curved are the firm's isoquants. 
C)  the flatter are the firm's isoquants. 
D)  the larger the quantity of labor employed.

Question 13

The size of the reduction in quantity of labor hired by a firm due to an increase in the wage rate depends upon all of the following except

Accepted Answer

A)  what percentage of total costs are made up of labor costs. 
B)  how much quantity demanded in the output market will be reduced by a higher price. 
C)  the capital to labor ratio before the wage increase. 
D)  how easily other inputs can be substituted for labor.

Question 14

Suppose the market for labor is perfectly competitive and the demand for labor is  and market supply is  .The equilibrium number of workers hired will be

Accepted Answer

A)  30 
B)  40 
C)  50 
D)  60

Question 15

A monopsonist will hire labor up to the point where

Accepted Answer

A)  the marginal expense of labor is minimized. 
B)  the marginal physical productivity of labor is maximized. 
C)  the marginal expense of labor is equal to marginal revenue. 
D)  the marginal expense of labor is equal to the marginal value product of labor.

Question 16

Suppose the market for labor is perfectly competitive and the demand for labor is  and market supply is  .If a minimum wage is imposed at W = 8,the total unemployed (  )will be

Accepted Answer

A)  20 
B)  40 
C)  60 
D)  80

Question 17

Suppose a firm is a monopolist in its output market and a perfect competitor in its input market.The demand for its output is   
 .The firm's production is given by  and the market wage is $50.The marginal revenue to the monopolist is

Accepted Answer

A)   
B)   
C)   
D)

Question 18

The fact that more women have chosen to work as real wages rise is evidence that,for them

Accepted Answer

A)  leisure is an inferior good. 
B)  income and substitution effects of higher real wages work in the same direction. 
C)  income and substitution effects of higher real wages may work in opposite directions. 
D)  income and substitution effects may work in opposite directions but that the substitution effect is stronger.

Question 19

If a firm is a price taker in both the input and output markets,its marginal revenue product of labor is given by

Accepted Answer

A)  the price of its output times labor's marginal physical productivity. 
B)  the marginal value product of labor. 
C)  the marginal revenue product of capital times the ratio of the wage rate to the rental rate on capital. 
D)  all of the above.

Question 20

Consider two situations: In situation A the production of widgets is monopolized by a single firm.In situation B the production of widgets is perfectly competitive.In both situations the supply of labor to widget makers is infinitely elastic at a wage of w.Which of the following statements is true?

Accepted Answer

A)  The marginal value product of labor will be the same in the two cases. 
B)  The marginal value product of labor is higher in case B than in case A. 
C)  The marginal value product of labor is higher in case A than in case B. 
D)  From the information given it is not possible to make a definite statement about the marginal value product of labor.

Exam 13: Pricing in Input Markets