Deck 12: The Markets for Labour and Other Factors of Production

Question 1

The firm's gain in profit from hiring another worker is

A)the marginal revenue product of the extra worker.
B)the difference between marginal revenue product and the wage of the worker.
C)the extra output of the extra worker.
D)the reduction in costs from hiring another worker.

Answer 1

B

Question 2

Firms use information on labour's marginal revenue product to determine

A)how much to produce at each output price.
B)how many workers to hire at each wage rate.
C)how much marginal product to produce at each wage rate.
D)how much labour services to supply at each wage rate.

Answer 2

B

Question 3

Figure 12-1 Figure 12-1 shows the marginal revenue product for Dale's Hand-Sewn Doilies,a producer of linen doilies.
Refer to Figure 12-1.If the wage rate is $40,how many workers should Dale hire?

A)6 labour units
B)5 labour units
C)4 labour units
D)3 labour units

Answer 3

D

Question 4

What is the difference between labour's marginal product and marginal revenue product?

A)The marginal product of labour is the increase in output as a result of hiring an additional worker,while the marginal revenue product of labour is the increase in profit as a result of hiring an additional worker.
B)The marginal revenue product of labour is the dollar value of hiring an additional worker,while the marginal product of labour is the increase in the firm's physical output as a result of hiring an additional worker.
C)The marginal product of labour is the additional labour's contribution to the firm's total output,while the marginal revenue product is the additional labour's contribution to the firm's total sales revenue.
D)Labour's marginal product is a measure of labour's productivity,while labour's marginal revenue product is a measure of labour's ability to sell the firm's products.

Question 5

The labour market is considered as one of the more important markets in an economy because

A)most people typically earn the bulk of their income from wages and salaries.
B)most people are concerned that wages determined in the labour market are unfair.
C)the usual market forces do not hold in the labour market.
D)the labour market does not reach an equilibrium.

Question 6

Table 12-1

Refer to Table 12-1.The marginal product of the fourth unit of labour is

A)300.
B)75.
C)60.
D)15.

Question 7

Table 12-1

Refer to Table 12-1.Suppose the output price is $3.If the firm represented in the table is maximising its profit by hiring six workers,what is the wage rate?

A)$120
B)$65
C)$40
D)There is insufficient information to answer the question.

Question 8

A firm's demand for labour curve is also called its

A)marginal revenue product of labour curve.
B)marginal factor cost of labour curve.
C)marginal valuation curve.
D)marginal benefit of labour curve.

Question 9

Suppose you have worked at a local sandwich shop for six months and now you plan to ask your manager for a raise.How can you convince your manager that you are worth more money than you are currently being paid?

A)by threatening to quit if he refuses to give you a raise
B)by demonstrating to your manager the marginal revenue product your employment contributes to the sandwich shop
C)by explaining to him how difficult it is for you to save enough money to go to university
D)by convincing him that you are a dedicated worker and ready to take on more responsibilities at the shop

Question 10

Marginal revenue product for a perfectly competitive seller is equal to

A)the output price multiplied by the total product of labour.
B)the output price multiplied by the number workers hired.
C)the change in total revenue that results from hiring another worker.
D)the marginal cost of production.

Question 11

Demand in factor markets differs from demand in product markets in that

A)the demand for a factor of production is difficult to determine.
B)the demand for a factor of production is influenced by workers' productivity and by the producers' expected sales revenues,not by tastes and preferences of consumers.
C)demand for a factor of production is based on the tastes and preferences of firms.
D)demand for a factor of production is based on the tastes and preferences of resource owners.

Question 12

Table 12-1

Refer to Table 12-1.If the output price is $3,what is the marginal revenue product of the fifth unit of labour?

A)$1050
B)$360
C)$210
D)$150

Question 13

What is the difference between a firm's marginal revenue and its marginal revenue product?

A)Marginal revenue is the change in sales revenue from selling one more unit of output,while marginal revenue product is the profit earned from hiring one more worker.
B)Marginal revenue is the change in sales revenue from selling one more unit of output,while marginal revenue product is the change in total revenue from hiring one more worker.
C)Marginal revenue is the increase in revenue when a firm raises its output price,while marginal revenue product is the increase in marginal product when a firm hires an additional worker.
D)There is no difference between the two terms.

Question 14

A reason why a perfectly competitive firm's demand for labour curve slopes downward is that

A)each additional unit of labour hired is less efficient than previously hired units.
B)in the short run,as more labour is hired,labour's marginal product falls because of the law of diminishing returns.
C)the extra cost of hiring additional units of labour increases as a firm hires more units of labour.
D)the firm's demand curve for the product that uses labour is downward sloping.

Question 15

Table 12-1

Refer to Table 12-1.Suppose the output price is $3.If the wage rate is $90,what is the profit-maximising quantity of labour that the firm should hire?

A)7 units
B)5 units
C)4 units
D)3 units

Question 16

Figure 12-1 Figure 12-1 shows the marginal revenue product for Dale's Hand-Sewn Doilies,a producer of linen doilies.
Refer to Figure 12-1.Suppose the market price of doilies rises to $3.What happens to the curve given in the diagram?

A)Nothing,because labour's productivity has not changed.
B)There will be a movement along the curve.
C)The curve shifts to the right.
D)We cannot answer the question without knowing if Dale would want to hire more workers.

Question 17

Marginal revenue product of labour for a competitive seller is

A)the change in total product from hiring one more worker.
B)equal to the marginal product of labour multiplied by the output price.
C)the output price multiplied by the quantity sold.
D)the marginal revenue of the product multiplied by the output price.

Question 18

Figure 12-1 Figure 12-1 shows the marginal revenue product for Dale's Hand-Sewn Doilies,a producer of linen doilies.
Refer to Figure 12-1.If Dale can sell her doilies at $2 each,what is the marginal product of the 5th worker?

A)$28
B)28 doilies
C)14 doilies
D)$56

Question 19

A firm's primary interest when it hires an additional worker is

A)the cost of hiring the additional worker.
B)how the average output of the firm will be affected by this new worker.
C)the extra revenue the firm realises from hiring that worker.
D)whether or not the new worker gets along with the firm's existing workers.

Question 20

The demand for labour is described as a derived demand because

A)it is derived by workers seeking to earn income to fund the consumption of goods and services.
B)it is derived by producers seeking to make profits by starting new businesses.
C)it is derived from the demand for products that use labour in the production process.
D)it is derived from government institutions which rely on labour markets for the purpose of raising tax revenue.

Question 21

Let MP = marginal product,P = output price,and W = wage,then the equation that represents a situation where a competitive firm should lay off some workers to maximise profits is

A)P × MP = W.
B)P × MP > W.
C)P × MP < W.
D)MP × W = P.

Question 22

Suppose a competitive firm pays a wage of $12 an hour and sells its product at $3 per unit.Assume that labour is the only input.If hiring another worker would increase output by five units per hour,then to maximise profits the firm should

A)not change the number of workers it currently hires.
B)lay off some of its workers.
C)hire the additional worker.
D)There is not enough information to answer the question.

Question 23

Table 12-2

Refer to Table 12-2.The firm represented in the table

A)has market power in the factor market.
B)has market power in the output market.
C)has market power in both the factor and product market.
D)has no market power in the factor or product market.

Question 24

Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit.Assume that labour is the only input.If the last worker hired increases output by three units per hour,then to maximise profits the firm should

A)not change the number of workers it currently hires.
B)lay off some of its workers.
C)hire additional workers.
D)There is not enough information to answer the question.

Question 25

An increase in a perfectly competitive firm's demand for labour could be caused by

A)a decrease in the market wage rate.
B)an increase in the market demand for the firm's product.
C)a decrease in the marginal product of workers.
D)an increase in the quantity of labour supplied.

Question 26

Let MP = marginal product,P = output price,and W = wage,then the equation that represents the condition where a competitive firm would hire another worker is

A)P × MP = W.
B)P × MP < W.
C)P × MP > W.
D)P × W > MP.

Question 27

In the legal sector,some practice areas have declined in recent years.For example,personal-injury and medical-malpractice cases have been undercut by state laws limiting class-action suits,out-of-state plaintiffs and payouts on damages,and securities class-action litigation has declined in part because of a buoyant stock market.How does this affect the market for lawyers?

A)The demand for lawyers shifts to the left.
B)The supply of lawyers shifts to the left.
C)The quantity of lawyers demanded decreases and this is represented by a movement along the demand curve.
D)Both the demand and supply curves decrease.

Question 28

Marginal revenue product can be calculated using the formula marginal product × output price

A)only if output price is constant.
B)only if the marginal product of labour is constant.
C)only if the both marginal product of labour and the output price are constant.
D)only if the firm has market power in the labour market.

Question 29

The demand for labour depends primarily on the additional output produced as a result of hiring an additional worker and

A)the additional revenue received from selling the output produced as a result of hiring an additional worker.
B)the payment made to the worker for producing the additional output.
C)the elasticity of demand for the output produced by the worker.
D)the number of workers willing to produce the additional output.

Question 30

Table 12-2

Refer to Table 12-2.The marginal revenue product of labour from the third unit of labour is

A)$5460.
B)$1560.
C)$1260.
D)$780.

Question 31

One difference between the labour market and markets for goods and services is

A)the demand in the labour market is inelastic;the demand for goods and services may be elastic or inelastic.
B)the supply of labour is perfectly inelastic because the quantity supplied is constant.The elasticity of supply for goods and services is different in different markets.
C)concepts of fairness arise more frequently in labour markets than in the markets for goods and services.
D)in the labour market,firms are suppliers while households are demanders.

Question 32

Table 12-2

Refer to Table 12-2.What is the profit-maximising quantity of labour that the firm should hire?

A)5 units
B)4 units
C)3 units
D)2 units

Question 33

Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit.Assume that labour is the only input.If hiring another worker would increase output by three units per hour,then to maximise profits the firm should

A)not change the number of workers it currently hires.
B)not hire an additional worker.
C)hire another worker.
D)There is not enough information to answer the question.

Question 34

Which of the following will not cause the labour demand curve to shift to the right?

A)an increase in the price of the firm's product
B)a technological improvement that increases labour productivity
C)an increase in human capital in the labour force
D)an increase in the market wage rate

Question 35

A decrease in the wage rate causes

A)an increase in the quantity of labour demanded.
B)a rightward shift of the firm's labour demand curve.
C)a leftward shift of the firm's labour demand curve.
D)a decrease in labour's productivity.

Question 36

What is a factor market?

A)It is a market where financial instruments are traded.
B)It is a market where stocks and bonds are traded.
C)It is a market where producers buy consumption and capital goods.
D)It is a market where resources used to produce final goods are traded.

Question 37

Table 12-2

Refer to Table 12-2.The marginal profit from hiring the second unit of labour is

A)$4200.
B)$1960.
C)$1800.
D)$1450.

Question 38

An increase in the wage rate causes

A)a rightward shift of the firm's labour demand curve.
B)a leftward shift of the firm's labour demand curve.
C)a decrease in the quantity of labour demanded.
D)an increase in labour's marginal productivity.

Question 39

If a worker can produce 20 units of output which can be sold for $4 per unit,what is the maximum wage that firm should pay to hire this worker?

A)$80
B)$80 minus the firm's profit markup
C)It depends on what the going wage rate is in the labour market.
D)There is insufficient information to answer the question.

Question 40

The demand for labour is different from the demand for final goods and services because

A)the demand for labour is derived from the demand for the good or service the labour is used to produce.
B)it is a demand for people,not inanimate objects.
C)the demand for labour is more inelastic than the demand for the goods and services produced with this labour.
D)the law of demand does not apply to the demand for labour.

Question 41

Marginal revenue product falls as more labour is hired because

A)the price of the product must fall for a perfectly competitive firm to sell more.
B)the wage rate rises as more workers work more hours.
C)the marginal product of labour is negative as additional units of labour are hired.
D)the marginal product of labour falls as a result of the law of diminishing returns.

Question 42

The benefit to the firm from hiring one additional worker is called the

A)marginal revenue product of labour.
B)marginal revenue.
C)marginal profit.
D)total revenue.

Question 43

Which of the following describes a difference between the marginal product of labour and the marginal revenue product of labour?

A)The marginal product of labour declines as each additional worker is hired because of the law of diminishing returns.The marginal revenue product of labour declines as each additional worker is hired because of diseconomies of scale.
B)The marginal product of labour declines as each additional worker is hired because of the law of diminishing returns.The marginal revenue product increases as each additional worker is hired because of increases in the productivity of labour.
C)The marginal product of labour is inelastic.The marginal revenue product of labour is elastic.
D)The marginal product of labour measures the change in output as additional workers are hired.The marginal revenue product measures the change in revenue as additional workers are hired.

Question 44

Table 12-3

Hotspur Incorporated,a manufacturer of microwave ovens,is a price taker in its input and output markets.The firm hires labour at a constant wage rate of $800 per week and sells microwave ovens at a constant price of $80.Table 12-3 shows the relationship between the quantity of labour it hires and the quantity of microwave ovens it produces.

-Refer to Table 12-3.What is Hotspur's profit maximising quantity of labour?

A)2 workers
B)3 workers
C)5 workers
D)6 workers

Question 45

The change in a firm's revenue as a result of hiring one more worker

A)is the definition of the marginal product of labour.
B)is equal to the firm's marginal cost.
C)is the definition of the marginal revenue product of labour.
D)will be negative if the demand for the firm's output is inelastic.

Question 46

A firm should hire more workers to increase its profits if

A)the marginal product of labour is greater than the wage the firm will pay these workers.
B)the wage rate is less than the marginal revenue product of labour.
C)there is enough capital and other resources for the workers to use.
D)the demand for labour is elastic.

Question 47

A firm's demand curve for labour slopes downwards because

A)of the law of diminishing marginal returns.
B)firms supply less labour as the wage rate rises.
C)workers supply less labour services as the wage rate falls.
D)of rising marginal product.

Question 48

The marginal revenue product of labour is defined as

A)the change in the firm's revenue as a result of selling one more unit of output.
B)the change in the firm's output as a result of hiring one more worker.
C)the change in the firm's profit as a result of hiring one more worker.
D)the change in the firm's revenue as a result of hiring one more worker.

Question 49

As more output is produced,the marginal product of labour declines

A)because of the law of diminishing returns.
B)if firms reduce the wage paid to labour.
C)if the firm's output supply curve is inelastic.
D)because the firm's marginal revenue declines.

Question 50

Holding the price of a firm's output constant,if the marginal product of labour increases

A)the marginal revenue product of labour decreases.
B)the marginal revenue product of labour also increases.
C)the marginal products of other inputs also increase.
D)the marginal revenue product of labour may increase or decrease.

Question 51

The marginal product of labour is

A)the payment made to workers for their contribution to the output they produce.
B)equal to the demand for labour.
C)the change in a firm's revenue as a result of hiring one more worker.
D)the additional output a firm produces as a result of hiring one more worker.

Question 52

Figure 12-2
Figure 12-2 shows the marginal revenue product for Becca's Baubles,a producer of hand-beaded bracelets.

-Refer to Figure 12-2.If Becca can sell her bracelets at $3 each,what is the marginal product of the 4th worker?

A)$36
B)12 bracelets
C)36 bracelets
D)$144

Question 53

Table 12-3

Hotspur Incorporated,a manufacturer of microwave ovens,is a price taker in its input and output markets.The firm hires labour at a constant wage rate of $800 per week and sells microwave ovens at a constant price of $80.Table 12-3 shows the relationship between the quantity of labour it hires and the quantity of microwave ovens it produces.

-Refer to Table 12-3.What is the amount of revenue added as a result of hiring the fourth worker?

A)$1200
B)$7200
C)15 microwaves
D)90 microwaves

Question 54

Table 12-3

Hotspur Incorporated,a manufacturer of microwave ovens,is a price taker in its input and output markets.The firm hires labour at a constant wage rate of $800 per week and sells microwave ovens at a constant price of $80.Table 12-3 shows the relationship between the quantity of labour it hires and the quantity of microwave ovens it produces.

-Refer to Table 12-3.What is the amount of profit added as a result of hiring the fourth worker?

A)$7200
B)$1200
C)$800
D)$400

Question 55

Figure 12-2
Figure 12-2 shows the marginal revenue product for Becca's Baubles,a producer of hand-beaded bracelets.

-Refer to Figure 12-2.Suppose the market price of bracelets falls to $2.What happens to the curve given in the diagram?

A)Nothing,because labour's productivity has not changed.
B)There will be a movement along the curve.
C)The curve shifts to the left.
D)We cannot answer the question without knowing if Becca would want to hire more workers.

Question 56

Figure 12-2
Figure 12-2 shows the marginal revenue product for Becca's Baubles,a producer of hand-beaded bracelets.

-Refer to Figure 12-2.If the wage rate is $20,how many workers should Becca hire?

A)6
B)5
C)4
D)3

Question 57

The term 'derived demand' refers to

A)the demand for financial products called derivatives.
B)the demand for a factor of production that is derived from the demand for the good the factor produces.
C)a firm's estimated demand curve derived from sales data.
D)a demand curve that derives from the availability of resources.

Question 58

For a firm that is a price taker in the market for labour,the marginal revenue product of labour equals the

A)marginal product of labour multiplied by the wage rate.
B)marginal product of labour multiplied by the product price.
C)marginal product of labour divided by the wage rate.
D)marginal product of labour multiplied by the marginal cost of production.

Question 59

The demand curve for labour is also

A)the demand curve for the output produced with labour since the demand for labour is a derived demand.
B)the marginal product of labour curve.
C)the marginal revenue product of labour curve.
D)the supply curve for the output labour is used to produce.

Question 60

An increase in the demand for orthodontic services leads to

A)an increase in the supply of orthodontists.
B)lower prices for orthodontic care.
C)an increase in the demand for orthodontists.
D)a rise in the rates of dental insurance.

Question 61

A decrease in the amount of human capital acquired by workers will lead to decrease in the supply of labour.

Question 62

Table 12-4
Table 12-4 lists data for the production of Apple iPods.Apple is assumed to be a price maker,so to increase its sales of iPods the firm must lower its price.MP_L and MRP_L refer to the marginal product of labour and the marginal revenue product of labour,respectively.
Refer to Table 12-4.What are the price and quantity of workers that result in the maximum amount of profit Apple would earn from selling iPods?

A)$140;2
B)$160;2
C)$140;3
D)$180;1

Question 63

Which of the following is not held constant along a firm's demand curve for labour?

A)the quantity of other inputs used by the firm
B)the wage rate
C)changes in technology
D)the price of the product produced by the firm

Question 64

The market demand curve for labour

A)is determined by adding up the quantity of labour demanded by each firm at each wage,holding constant the other variables that affect the willingness of firms to hire workers.
B)is the same as the market demand curve for the product labour produces because it is a derived demand.
C)is determined by adding up the demand for labour by each firm at each wage,holding constant the other variables that affect the willingness of firms to hire workers.
D)is perfectly inelastic because there is a finite number of workers in the market for labour.

Question 65

An increase in the supply of capital,which is a substitute to labour,will lead to a decrease in the demand for labour.

Question 66

Suppose a competitive firm is paying a wage of $12 an hour.Assume that labour is the only input.If hiring another worker would increase output by four units per hour,then to maximise profits the firm should

A)not change the number of workers it currently hires.
B)hire the extra worker.
C)lay off some workers.
D)There is not enough information to answer the question.

Question 67

What are the five most important variables that cause the market demand curve for labour to shift?

Question 68

Which of the following factors will not cause the labour demand curve to shift?

A)increases in human capital
B)changes in technology
C)change in the price of the product produced with labour
D)the wage rate

Question 69

Technological advancements that increase labour's productivity shift the labour supply curve to the right.

Question 70

Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit.Assume that labour is the only input.If the last worker hired produces four units of output per hour,then to maximise profits the firm should

A)not change the number of workers it currently hires.
B)lay off some workers.
C)hire another worker.
D)There is not enough information to answer the question.

Question 71

A profit-maximising firm should hire workers up to the point where labour's marginal revenue product equals the wage rate.

Question 72

The marginal product of labour is the increase in output as a result of hiring an additional worker while the marginal revenue product of labour is the increase in profit as a result of hiring an additional worker.

Question 73

The marginal product of labour curve is the demand curve for labour.

Question 74

The demand for labour is a derived demand.Explain what is meant by the term 'derived demand.'

Question 75

Table 12-4
Table 12-4 lists data for the production of Apple iPods.Apple is assumed to be a price maker,so to increase its sales of iPods the firm must lower its price.MP_L and MRP_L refer to the marginal product of labour and the marginal revenue product of labour,respectively.
Refer to Table 12-4.What are the price and quantity of workers that result in the maximum amount of revenue Apple would earn from selling iPods?

A)$180;1
B)$140;2
C)$120;2
D)$120;4

Question 76

Table 12-4
Table 12-4 lists data for the production of Apple iPods.Apple is assumed to be a price maker,so to increase its sales of iPods the firm must lower its price.MP_L and MRP_L refer to the marginal product of labour and the marginal revenue product of labour,respectively.
Refer to Table 12-4.What are the quantity of labour and marginal revenue product of labour that will maximise the profit Apple would earn from selling iPods?

A)2;$160
B)3;$340
C)2;$680
D)3;$140

Question 77

An increase in the price of grape juice causes an increase in the marginal revenue product of labour used to produce grape juice.

Question 78

Labour demand is considered a derived demand because producers do not demand labour for itself but only because labour is used to produce output that consumers desire.

Question 79

An increase in a perfectly competitive firm's demand for labour could be caused by

A)a decrease in the market wage rate.
B)an increase in the amount of human capital among the labour force.
C)an increase in the supply of labour.
D)a decrease in the market price of the product the firm produces.

Question 80

An increase in the supply of capital,which is a complement to labour,will lead to

A)a decrease in the quantity of labour demanded.
B)an increase in the demand for labour.
C)a decrease in the demand for labour.
D)an increase in the quantity of labour demanded.