Question 1

Suppose that the marginal revenue product function for the firm is MRPL = 40 - .75L.Assume that the firm hires labor in a competitive labor market at a wage of W = $10 per hour.Explain why employment of L = 20 is not profit maximizing (show exactly how profit could be increased).What is the profit maximizing level of employment for this firm?

Accepted Answer

L = 20 is not profit maximizing because MRP > W at this employment level.Given L = 20,MRP = $25 while W = $10.Hence the marginal worker contributes considerably more to revenue than to cost at L = 20.The firm should expand employment as long as MRP > W = $10,as employment of all such workers is profit increasing.The profit maximizing level of employment occurs where MRP = W,which is at L = 40 in this problem.

Question 2

If a tax is placed on an employer,

Accepted Answer

A)   workers will not have to pay the tax.
B)   both wages and employment levels will usually decrease.
C)   customers will not have to pay the tax.
D)   wages will decrease, but employment levels will increase. B

Question 3

If the hourly wage is $50 and the price of output is $25,then,in the short run,

Accepted Answer

A)   the firm should add workers if they add 1/2 or more units to output.
B)   the firm should add workers if they add 2 or more units to output.
C)   the firm should hire two workers.
D)   the firm should reduce employment until the wage falls to $25. B

Question 4

Workers will bear less of a payroll tax if

Accepted Answer

A)   the supply of labor curve is steeper.
B)   employers are made to pay more of the tax.
C)   the supply of labor curve is flatter.
D)   employers are made to pay less of the tax.

Question 5

Declining marginal product of labor

Accepted Answer

A)   is needed if competitive firms are to stop hiring workers at some point.
B)   allows firms to make the most profit.
C)   mainly exists because workers get tired after many hours of work.
D)   implies workers get more productive as more of them are hired.

Question 6

If two inputs are substitutes in production,and an increase in the price of one input shifts the demand curve for the other input to the left,then

Accepted Answer

A)   the scale effect is greater than the substitution effect, and the two are gross complements.
B)   the scale effect is less than the substitution effect, and the two are gross complements.
C)   the scale effect is greater than the substitution effect, and the two are gross substitutes.
D)   the scale effect is less than the substitution effect, and the two are gross substitutes.

Question 7

The firm's labor demand curve in the short run

Accepted Answer

A)   is upward sloping.
B)   is horizontal.
C)   is the downward sloping segment of the marginal revenue schedule.
D)   is the downward sloping segment of the marginal product of labor schedule.

Question 8

If employers are paid a subsidy of $0.75 per hour for hiring teenaged workers,then

Accepted Answer

A)   the teenagers' wage rate will usually increase by less than $0.75 per hour.
B)   the teenagers' wage rate will usually increase by more than $0.75 per hour.
C)   the teenagers' wage rate will usually increase by exactly $0.75 per hour.
D)   the teenagers' wage rate will usually decrease.

Question 9

Consider a firm using three inputs: unskilled labor,skilled labor,and capital.Unskilled labor and capital are substitutes in production,while skilled labor and capital are complements in production.If the price of capital decreases,then

Accepted Answer

A)   employment of skilled labor increases and employment of unskilled labor decreases.
B)   employment of both skilled and unskilled labor decreases.
C)   employment of skilled labor increases but the effect on employment of unskilled labor is ambiguous.
D)   employment of skilled labor could increase or decrease and the employment of unskilled labor definitely decreases.

Question 10

Consider the short run production function for a hypothetical restaurant shown in the table.Cooks are equally talented and hardworking.The MPL column in the table illustrates

Accepted Answer

A)   that firms tend to hire the best workers first.
B)   the law of supply.
C)   diminishing marginal returns in labor that derives from the fact that as employment expands cooks have less capital per person to work with.
D)   increasing returns to scale followed by decreasing returns to scale, which is a fundamental empirical proposition in economics.

Question 11

The marginal product of labor tells us

Accepted Answer

A)   which employee is the most productive.
B)   the average output produced by each employee.
C)   the additional output produced by the last employee hired.
D)   how much money the firm can make from hiring each employee.

Question 12

A competitive industry hires 1000 workers.The 1000th worker adds $500 a week to their employer's revenue.If a monopoly took over the industry,then the 1000th worker would likely

Accepted Answer

A)   add less than $500 a week to their employer's revenue.
B)   still add $500 a week to their employer's revenue.
C)   add more than $500 a week to their employer's revenue.
D)   uncertain; it depends on the shape of the demand curve for output.

Question 13

Suppose that a firm rents labor services in a competitive labor market where the equilibrium wage rate is $15 per hour.Sketch the labor supply curve that the firm faces (label the axes of your graph and relevant numeric reference points appropriately).Explain why the graph looks as you have drawn it.

Accepted Answer

The answer of Suppose that a firm rents labor services...

Question 14

When a firm moves to a higher isoquant,

Accepted Answer

A)   the utility level of the firm's managers increases.
B)   the firm now produces more output.
C)   the firm now produces less output.
D)   the firm produces the same output, but at a higher price.

Question 15

State and discuss the two kinds of objections raised to the marginal productivity theory of labor demand.

Accepted Answer

The answer of State and discuss the two kinds of...

Question 16

If a payroll tax of $X per hour is collected from employers,then the

Accepted Answer

A)   labor demand curve shifts down by  12\frac { 1 } { 2 }21​  $X at any given employment level.
B)   labor demand curve shifts down by amount $X at any given employment level.
C)   labor supply curve shifts left by $X at any given employment level.
D)   labor supply curve shifts down by $X at any given employment level.

Question 17

The output of workers at a factory depends on the number of supervisors employed.The factory sells its good in a competitive product market at a price of P = $5.The daily wage of supervisors is W = $600.Fill in the MPL and MRPL columns in the table below.
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Supervisors } & \begin{array} { c } 
\text { Output (units } \
\text { per day) }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Product } \
\left( M _ { \mathrm { L } } \right)
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Revenue Product } \
\left( \mathrm { MRP } _ { \mathrm { L } } \right)
\end{array} \
\hline 0 & 100 & & \
\hline 1 & 500 & & \
\hline 2 & 860 & & \
\hline 3 & 1160 & & \
\hline 4 & 1400 & & \
\hline 5 & 1560 & & \
\hline 6 & 1640 & & \
\hline 7 & 1680 & & \
\hline 8 & 1680 & & \
\hline
\end{array}$$ 
How many supervisors should the firm employ? Explain why.

Accepted Answer

The answer of The output of workers at a factory...

Question 18

Table 3.1
 $$\begin{array} { c c } 
\text { Number of Workers } & \begin{array} { c } 
\text { Total \# of Pots } \
\text { Produced Per Day }
\end{array} \
\hline 0 & 0 \
1 & 6 \
2 & 13 \
3 & 18 \
4 & 21 \
5 & 23 \
6 & 22 \
\hline
\end{array}$$
-Referring to Table 3.1,if wages are $50.00 per day and pots sell for $20.00 each,how many potters will the firm hire?

Accepted Answer

A)   two
B)   three
C)   four
D)   five

Question 19

For two substitutes in production,if the scale effect dominates,

Accepted Answer

A)   then the inputs are gross complements.
B)   then the inputs are gross substitutes.
C)   then the inputs could be either gross complements or gross substitutes.
D)   then the inputs cannot be used at the same time.

Question 20

Table 3.1
 $$\begin{array} { c c } 
\text { Number of Workers } & \begin{array} { c } 
\text { Total \# of Pots } \
\text { Produced Per Day }
\end{array} \
\hline 0 & 0 \
1 & 6 \
2 & 13 \
3 & 18 \
4 & 21 \
5 & 23 \
6 & 22 \
\hline
\end{array}$$
-Referring to Table 3.1,diminishing marginal returns begins with the ________ employee.

Accepted Answer

A)   first
B)   second
C)   third
D)   sixth

Exam 3: The Demand for Labor