Deck 15: The Demand for Factors of Production

Question 1

A competitive firm's demand for labor always slopes down in the short-run but may slope upwards or downwards in the long-run.

Answer 1

False

Question 2

A firm's marginal revenue product of labor equals the marginal product of labor times the cost per unit of the labor.

Answer 2

False

Question 3

The substitution effect on labor always decreases the amount of labor employed when the wage rate goes up.

Answer 3

True

Question 4

For a regressive factor the scale effect must be greater than the substitution effect.

Question 5

If labor is a regressive factor,then a firm's long-run demand for labor may or may not be downward sloping.

Question 6

If labor and capital are complements in production,additions to capital will increase both the total and marginal products of labor.

Question 7

When a firm's long-run demand curve for labor is derived,the amount of capital employed is held constant.

Question 8

As long as labor is not a regressive factor,a higher wage will cause a firm to produce less output in the long run.

Question 9

A monopsonist's short-run demand curve for labor coincides with its marginal revenue product of labor curve.

Question 10

A monopsonist hires fewer workers and pays a lower wage than would be the case if many firms competed to hire labor.

Question 11

The substitution effect of a rise in the wage may increase or decrease the firm's employment of labor.

Question 12

When labor and capital are complements in production,a higher wage will cause a firm to use more capital in the long run.

Question 13

When labor is a regressive factor,a higher wage rate leads to a reduction in the firm's long-run total costs.

Question 14

As the wage rate rises,the marginal revenue product of labor increases.

Question 15

Increased use of machinery always hurts workers by lowering the demand for their labor.

Question 16

A monopsonist will continue to hire additional laborers as long as their marginal revenue product exceeds the wage rate.

Question 17

When two factors are substitutes in production,an increase in the employment of one increases the marginal product of the other.

Question 18

An industry's demand curve tends to be more elastic than the sum of the individual firms' labor curves.

Question 19

Derived demand for an input is the process by which individual firm's demand for labor are aggregated to get the industry demand for labor.

Question 20

A competitive firm's short-run demand for labor will rise when the price of its product rises.

Question 21

The profit an owner receives is equivalent to the rent received for her entrepreneurial services.

Question 22

Each additional unit of output produced by a unit of labor is valued at the price of the firm's output

A) always.
B) when the firm is selling in a competitive market.
C) when the firm has monopoly power in the market for its output.
D) when the firm has monopsony power in the market for labor.

Question 23

The short-run demand curve for labor for a firm in any type of market for its output coincides with

A) the upward sloping portion of the marginal revenue product curve.
B) the downward sloping portion of the marginal revenue product curve.
C) the downward sloping portion of the marginal product curve.
D) the marginal labor cost curve.

Question 24

If increased capital usage reduces the firm's short-run demand for labor,then

A) labor is a regressive factor.
B) labor and capital are complements in production.
C) labor and capital are substitutes in production.
D) labor is a Giffen factor.

Question 25

If labor and capital are complements in production,then an increase in the amount of capital will

A) reduce the firm's demand for labor.
B) raise the firm's marginal cost of production.
C) cause the scale effect to outweigh the substitution effect.
D) increase labor's marginal product.

Question 26

Both the competitive firm's demand curve for labor and the monopoly firm's demand curve for labor always slope downwards.

Question 27

If demand for output rises,producers' surplus increases more for factors with elastic supply curves than for other factors.

Question 28

When a firm increases its capital usage

A) the total product curve can be expected to fall.
B) the total product curve can be expected to rise.
C) the marginal product of labor always rises.
D) the marginal product of labor always falls

Question 29

A profit maximizing firm in any type of market for its output would hire the quantity of labor at which

A) the marginal cost of output is equal to the marginal revenue product of labor,where MRP is sloping downward.
B) the wage rate is equal to marginal revenue product,where MRP is downward sloping.
C) the wage rate is equal to marginal revenue product,where MRP is still sloping upward.
D) the difference between the wage rate and marginal revenue product is greatest.

Question 30

Factors that are supplied relatively inelastically earn more rents than those supplied more elastically.

Question 31

Marginal revenue product for labor for any type of firm is

A) the additional revenue that a firm earns when it employs one more unit of labor.
B) the additional revenue that a firm earns when it produces one more unit of output.
C) the additional cost of employing one more unit of output.
D) the difference between the revenue from employing one more unit of labor and the wage rate.

Question 32

Suppose a firm hires labor in a competitive labor market.When will hiring more labor increase the firm's profit?

A) When the marginal revenue product of labor exceeds the wage rate.
B) When the marginal product of labor is positive.
C) When the marginal labor cost is falling.
D) When the wage rate is less than the firm's marginal cost of production.

Question 33

In the long run,a competitive firm that experiences decreasing returns must earn negative profits after all factor shares are paid out.

Question 34

A monopsonist is

A) a buyer who faces an upward-sloping supply curve.
B) a buyer who faces a downward-sloping supply curve.
C) a seller who faces an upward-sloping demand curve.
D) a seller who faces a downward-sloping demand curve.

Question 35

When production is subject to increasing returns to scale profit will be positive.

Question 36

An increase in the price of labor will,in the short-run,cause a competitive firm's

A) marginal cost to increase,the quantity it sells to decrease and therefore reduce the quantity demand of labor.
B) price of its output to increase,leaving demand for labor unchanged.
C) marginal revenue product of labor to decrease and therefore reduce demand for labor.
D) marginal revenue product of labor to increase and therefore increase demand for labor.

Question 37

If the wage rate rises,then in the long run,the firm will replace some of its labor with other factors such as capital,even if it keeps its output level constant.This phenomenon is known as

A) the substitution effect.
B) the scale effect.
C) the regressive-factor effect.
D) the factor-price effect.

Question 38

If labor and capital are substitutes in production,then an increase in the amount of capital will

A) reduce the total product associated with each quantity of labor.
B) decrease the marginal product of labor.
C) increase the marginal product of labor.
D) have no effect on labor productivity.

Question 39

If a firm has monopoly power in the market for its output,the marginal revenue product of labor

A) is no different than for a competitive firm.
B) is less for each unit of labor than for a competitive firm.
C) continuously slopes upward instead of turning downward.
D) is greater for each unit of labor than for a competitive firm.

Question 40

If the wage rate rises,then the firm's long-run marginal costs change,which in turn affects the firm's output level and its employment of labor.This phenomenon is known as

A) the substitution effect.
B) the scale effect.
C) the regressive-factor effect.
D) the factor-price effect.

Question 41

Labor Demand and Labor Supply

The following questions refer to the accompanying diagram, which shows an industry's labor demand and labor supply. Labor and capital are the only factors used by the industry. The industry hires L units of labor at a wage of PL.



-Refer to Labor Demand and Labor Supply.Suppose firms in the industry earn zero profit.The total rental payment made to the industry's capital is measured by

A) area A.
B) area B.
C) area A + B.
D) area B + C.

Question 42

For a firm in the long-run,an increase in the market wage rate will cause it to reduce the employment of labor.With fewer workers,the firm's marginal revenue product for capital

A) shifts downward leading the firm to use less capital.
B) shifts upward leading the firm to use more capital.
C) twists so that is becomes more elastic
D) is not affected.

Question 43

Changes in the demand for an industry's output are felt most by those factors that

A) are inelastically supplied.
B) are paid the highest factor prices.
C) earn relatively little economic rent.
D) have a sizable number of alternative uses.

Question 44

When will the scale effect of a wage increase cause a fall in the amount of labor employed?

A) Always.
B) When labor is not a regressive factor.
C) When labor and capital are substitutes in production.
D) When labor and capital are complements in production.

Question 45

According to the standard competitive model,industries with increasing returns would not be profitable.However,economist Paul Romer argues that many industries may be experiencing increasing returns because

A) many important inputs are common property and therefore equally available to all firms.
B) many important inputs may be nonrivalrous so that there is no limit to how much they can be used.
C) of a decline in the number of monopsonistic firms in labor markets.
D) of an increase in the number of firms that are natural monopolies.

Question 46

When an industry's demand curve for labor is derived from the individual firms' demand curves,what complication must be taken into account?

A) Adjustments in the amount of capital employed.
B) The factor-price effect.
C) Changes in the price of the firms' product.
D) Monopsony power.

Question 47

When a monopsony hires an additional worker,it must pay the new worker's wages and it bids up the wages of all workers.This fact implies that the monopsony's

A) marginal labor cost is greater than the wage rate.
B) demand curve for labor is perfectly elastic at the going market wage.
C) marginal revenue product of labor is equal to the wage rate.
D) labor usage is greater than that of a firm that is competitive in the labor market.

Question 48

When will a wage increase cause a firm to produce more output in the long run?

A) Always.
B) When labor and capital are complements in production.
C) When labor is a regressive factor.
D) Never.

Question 49

Reducing Long-Run Labor Usage

The following questions refer to the accompanying diagram, which shows a firm reducing its long-run labor usage from L0 to L1 in response to an increase in the wage rate.



-Refer to Reducing Long-Run Labor Usage.The substitution effect of the wage change is the movement from point X to

A) point A.
B) point B.
C) point C.
D) point D.

Question 50

To maximize its profits,a monopsonist will hire labor the quantity of labor at which marginal revenue product of labor

A) is downward sloping and equal to the market wage rate.
B) is downward sloping and equal to its marginal labor cost.
C) minus marginal labor cost is maximized.
D) is maximized.

Question 51

Consider the usual case where a higher wage rate increases firms' marginal costs.In this case,the industry's demand curve for labor

A) is more inelastic than the individual firms' demand curves would indicate.
B) coincides with the horizontal sum of individual firms' demand curves.
C) contains only substitution effects but no scale effects.
D) is horizontal at the going market wage.

Question 52

When will the substitution effect of a wage increase cause a fall in the amount of labor employed?

A) Always.
B) When labor is not a regressive factor.
C) When labor and capital are substitutes in production.
D) When labor and capital are complements in production.

Question 53

Reducing Long-Run Labor Usage

The following questions refer to the accompanying diagram, which shows a firm reducing its long-run labor usage from L0 to L1 in response to an increase in the wage rate.



-Refer to Reducing Long-Run Labor Usage.The diagram illustrates the situation where

A) the long-run demand for labor is upward sloping.
B) the scale effect reinforces the substitution effect.
C) the higher wage raises the firm's long-run marginal costs.
D) labor is a regressive factor.

Question 54

Reducing Long-Run Labor Usage

The following questions refer to the accompanying diagram, which shows a firm reducing its long-run labor usage from L0 to L1 in response to an increase in the wage rate.



-Refer to Reducing Long-Run Labor Usage.The scale effect of the wage change is the movement from point

A) X to point A.
B) X to point B.
C) B to point C.
D) C to point D.

Question 55

Labor Demand and Labor Supply

The following questions refer to the accompanying diagram, which shows an industry's labor demand and labor supply. Labor and capital are the only factors used by the industry. The industry hires L units of labor at a wage of PL.



-Refer to Labor Demand and Labor Supply.What does area B represent?

A) The industry's total revenue.
B) The rent earned by the industry's laborers.
C) The total wages paid to the industry's laborers.
D) The rent earned by the industry's capital.

Question 56

Labor Demand and Labor Supply

The following questions refer to the accompanying diagram, which shows an industry's labor demand and labor supply. Labor and capital are the only factors used by the industry. The industry hires L units of labor at a wage of PL.



-Refer to Labor Demand and Labor Supply.What does area A + B + C represent?

A) The industry's total revenue.
B) The rent earned by the industry's laborers.
C) The total wages paid to the industry's laborers.
D) The rent earned by the industry's capital.

Question 57

In long-run equilibrium,a competitive firm can earn zero profit only if its technology exhibits

A) increasing returns to scale.
B) decreasing returns to scale.
C) constant returns to scale.
D) regressive returns to scale.

Question 58

As the amount of labor used in production increases,total product

A) increases at low levels of labor and decreases at high levels labor.
B) increases at high levels of labor and decreases at low levels of labor.
C) always increases.
D) always decreases.

Question 59

The temporary producers' surpluses earned in the short run by factors that are inelastically supplied are called

A) regressive rents.
B) transitory rents.
C) windfall rents.
D) quasi-rents.

Question 60

A firm's revenue minus its factor payments equals

A) zero.
B) the profits or losses earned by the firm.
C) the quasi-rents earned by the factors of production.
D) the firm's total revenue.

Question 61

Discuss whether or not a competitive,profit-maximizing firm would ever cease hiring workers if the marginal product of the next worker is higher than that of the last worker hired (that is,the firm is on the increasing portion of its marginal product curve).

Question 62

Mike's Mealbarn is a competitive firm in the hot dog stand business.How will each of the following affect the short-run demand for labor at Mike's?

Question 63

A profit maximizing price taker will produce at a level where

A) the wage equals the marginal product of labor.
B) the marginal revenue product of labor equals the price of their output.
C) the wage rate equals the price of their output.
D) the marginal revenue product of labor equals the wage rate.

Question 64

If the wage rate is $10 per hour and one worker can currently produce 2 units of output per hour,then the marginal cost of production is

A) $5
B) $10
C) $20
D) the answer cannot be determined from the information given.

Question 65

If two factors of production are substitutes in production,then a decrease in plant size will make the total product curve

A) higher and steeper.
B) lower and steeper.
C) higher and more shallow.
D) lower and more shallow.

Question 66

The Spa DuJour Salon faces a downward-sloping demand curve for haircuts and hires stylists in a competitive labor market.How will each of the following affect the short-run demand for stylists at Armadillo?

Question 67

The phenomenon whereby labor decreases in response to a decrease in the wage rate is called

A) the substitution effect.
B) the scale effect.
C) derived demand from a change in wage.
D) the factor regressivity of labor.

Question 68

Consider a fall in the wage rate.How does the substitution effect change the amount of labor that a firm hires? How does the scale effect change the amount of labor that a firm hires? What do these effects imply about the firm's long-run demand for labor?

Question 69

Consider the following:

Question 70

Suppose labor and capital are the only factors of production.Capital is fixed and has a perfectly inelastic supply,so all income earned by capital is rent.A Japanese-owned factory is built in the U.S.and employs only American workers.Let D_US represent the demand for labor in American factories and D_J represent the demand for labor in the new Japanese factory.The effect of the new factory on the American labor market is shown in the accompanying diagram.

Question 71

In terms of the marginal product of labor,how much labor is needed to produce one more unit of output? If the cost of that labor is w,then how much does one more unit of output cost to produce? If a firm is a perfectly competitive profit maximizer,show why they produce where w equals the marginal revenue product of labor.

Question 72

A firm can sell as many units of its output as it wants for $10 a piece.The current market wage rate for its workers is $20 per hour.It follows that the firm will hire workers up to the point where the last worker hired produces how much per hour?

A) one unit.
B) two units.
C) one-half a unit.
D) 200 units.

Question 73

If a firm hires workers up to the point where the value of their marginal product equals their wage,then the firm is

A) minimizing labor costs.
B) maximizing profit.
C) maximizing the MP of labor.
D) minimizing average costs.