Ch19 The Markets For The Factors Of Production Test Bank - Principles of Microeconomics ANZ Edition Test Bank by Joshua Gans. DOCX document preview.
CHAPTER 19 – The markets for the factors of production
TRUE/FALSE
1. The demand for apple pickers is derived from the demand for apples.
DIF: Easy TOP: The demand for labour
2. If a factor market is competitive, then the product market must also be competitive.
DIF: Easy TOP: The competitive profit-maximising firm.
3. The value of the marginal product curve is the labour demand curve for a competitive, profit-maximising firm.
DIF: Easy TOP: The value of the marginal product and the demand for labour
4. Suppose there is a profit-maximising competitive firm. If it increases the number of workers it employs it will notice that the value of the marginal product of labour falling.
DIF: Easy TOP: The production function and the marginal product of labour
5. A competitive profit-maximising firm hires workers up to the point where the wage equals the price of the final good.
DIF: Easy TOP: The production function and the marginal product of labour
6. Assuming the standard criteria for profit maximisation, a competitive firm’s final good price will equal the wage paid to workers divided by their marginal product.
DIF: Moderate TOP: The production function and the marginal product of labour
7. The quantity available of one factor of production can affect the marginal product of other factors.
DIF: Easy TOP: The supply of other factors
8. The labour supply curve reflects how workers’ decisions about the labour–leisure trade-off respond to changes in the opportunity cost of leisure.
DIF: Moderate TOP: The trade-off between work and leisure
9. An upward sloping supply curve for labour means that to get workers to work, more wages must increase.
DIF: Easy TOP: The trade-off between work and leisure
10. The supply of labour in any one market depends on the opportunities available in other markets.
DIF: Easy TOP: Changes in alternative opportunities
11. Movements of workers from country to country can cause shifts in the labour supply curve.
DIF: Moderate TOP: Immigration
12. In a competitive labour market, wages will adjust to equal the marginal product of labour.
DIF: Easy TOP: Equilibrium in the labour market
13. A decrease in the price of milk products will not have any effect on the wages of dairy-farm workers.
DIF: Easy TOP: Equilibrium in the labour market
14. The wage rate both balances the supply and demand for labour and equals the value of the marginal product of labour.
DIF: Easy TOP: Equilibrium in the labour market
15. Increases in productivity are not responsible for increased standards of living in Australia.
DIF: Easy TOP: Case study: Productivity and wages
16. Productivity is low in most Asian countries.
DIF: Easy TOP: Case study: Productivity and wages
17. The demand curve for each factor reflects the marginal productivity of that factor.
DIF: Easy TOP: Linkages among the factors of production
18. Capital income does not include income paid to households for the use of their capital.
DIF: Moderate TOP: FYI: What is capital income?
19. When a firm decides to retain its earnings instead of pay dividends, the shareholders are not being rewarded.
DIF: Easy TOP: FYI: What is capital income?
20. Capital owners are compensated according to the value of the marginal product of that capital.
DIF: Easy TOP: FYI: What is capital income?
21. For any given quantity of labour, an increase in price will cause the marginal product of labour to increase.
DIF: Moderate TOP: Shifts in labour demand
22. During the Black Death, which occurred in Europe in the 1340s, with fewer workers available to farm the land, employers were able to choose better skilled labour to employ.
DIF: Easy TOP: Linkages among the factors of production
23. The basic purpose of the theory of factor markets is to explain how income is distributed among factors of production.
DIF: Easy TOP: Introduction
24. Changes in the capital stock will often lead to changes in wages.
DIF: Moderate TOP: Linkages among the factors of production
25. If land used for forestry loses its fertility, then over time the value of the marginal product of land will fall and the rental price on that land will fall.
DIF: Easy TOP: Linkages among the factors of production
26. A massive power surge wipes out half of all computers in Melbourne. This will result in a lower demand for office workers, increasing their marginal product of labour and, hence, raising the wage of office workers.
DIF: Moderate TOP: Equilibrium in the markets for land and capital
27. The value of the marginal product of any input is equal to the marginal product of that input multiplied by the market price of the output.
DIF: Moderate TOP: The value of the marginal product and the demand for labour
28. A competitive, profit-maximising firm hires workers until marginal product equals zero.
DIF: Moderate TOP: The value of the marginal product and the demand for labour
29. The purchase price of capital is the price a person pays to own that factor of production indefinitely, while the rental price of capital is the price paid to use capital for a limited time period.
DIF: Moderate TOP: The other factors of production: Land and capital
30. When labour supply increases, the equilibrium wage rises and employment increases.
DIF: Moderate TOP: Equilibrium in the labour market
MULTIPLE CHOICE
1. The economy’s stock of equipment and structures is best described as?
A. | aggregate stock |
B. | aggregate structures |
C. | capital |
D. | shares and derivatives |
DIF: Easy TOP: The other factors of production: Land and capital
2. Rent, interest and profit are all forms of income paid to the owners of:
A. | aggregate stock |
B. | aggregate demand |
C. | land and capital |
D. | long-term inventory |
DIF: Easy TOP: The other factors of production: Land and capital
3. The factors of production are best defined as the:
A. | the factual description of the production process |
B. | the labour used to produce goods and services |
C. | wages paid to the workforce |
D. | inputs used to produce goods and services |
DIF: Easy TOP: Introduction
4. The demand for a factor of production is a derived demand. Derived demand means that:
A. | a firm’s demand for a factor of production is derived from its supply decision |
B. | the firm’s demand can be mathematically derived |
C. | both the demand for and supply of factors of production is derived from an external market |
D. | the demand curve for a good is derived from the factors of production used to produce that good |
DIF: Moderate TOP: Introduction
5. A firm’s willingness to pay for a factor of production ultimately depends on the demand for the goods the input is used to produce. This type of demand is called:
A. | ultimate demand |
B. | derived demand |
C. | labour demand |
D. | supplied demand |
DIF: Easy TOP: Introduction
6. Labour markets are different from most product markets because labour demand is:
A. | horizontal |
B. | upward-sloping |
C. | derived |
D. | based on social needs |
DIF: Easy TOP: The demand for labour
7. Which of the following best illustrates the concept of ‘derived demand’?
A. | an increase in the wages of abalone fishers will lead to an increase in the demand for fishing boats in boat factories |
B. | an abalone farm’s decision to supply more abalone results from a decrease in the demand for station abalone |
C. | an increase in the price of fuel will lead to an increase in the demand for smaller fishing boats |
D. | an abalone fishing firm’s decision to supply more abalone will lead to an increase in the demand for abalone fishers |
DIF: Moderate TOP: Introduction
8. An example of labour in the fishing industry would be the:
A. | trawling time saved by using motorised winches |
B. | trawling time saved by employing larger nets |
C. | increase in catch from better fish-finding technology |
D. | time that a fisher takes to sort the catch |
DIF: Easy TOP: Introduction
9. In the Australian economy most labour services are:
A. | final goods |
B. | inputs into other goods |
C. | imports |
D. | outputs |
DIF: Easy TOP: the demand for labour
10. The Gippsland region in Victoria produces a lot of potatoes from many potato farms. Suppose the sole input into the production of potatoes is the labour required to harvest. Which of the following statements regarding market structure do you think is most likely the case?
A. | the market for potatoes is competitive and the supply of potato pickers is a monopoly |
B. | the market for potatoes is competitive and the market for potato pickers is competitive |
C. | the market for potatoes is a monopoly and the market for potato pickers is competitive |
D. | the market for potatoes is a monopoly and the supply of potato pickers is a monopoly |
DIF: Moderate TOP: The competitive profit-maximising firm
11. A firm’s demand for labour is derived out of:
A. | profit maximisation |
B. | cost minimisation |
C. | revenue maximisation |
D. | the price of a good |
DIF: Easy TOP: The production function and the marginal product of labour
12. Assume labour is the only factor of production in a competitive product market. If there are increasing returns to scale then:
A. | marginal product of labour is constant |
B. | marginal product of labour is decreasing |
C. | marginal product of labour is increasing |
D. | we cannot say without more information |
DIF: Moderate TOP: The production function and the marginal product of labour
13. If an increase in the number of workers leads to all workers becoming less productive, this situation is called:
A. | diminishing profitability |
B. | diminishing marginal product |
C. | increasing marginal product |
D. | lessening production |
DIF: Easy TOP: The production function and the marginal product of labour
14. In labour markets, the supply curve represents:
A. | the supply of workers |
B. | the supply of a firm’s product |
C. | the equilibrium wage rate |
D. | the marginal profit of labour |
DIF: Easy TOP: The production function and the marginal product of labour
15. When deciding how much labour to hire, a profit-maximising firm should hire workers until:
A. | marginal profit equals the wage rate |
B. | marginal revenue equals marginal profit |
C. | marginal product equals the wage rate |
D. | marginal profit is zero |
DIF: Moderate TOP: The value of the marginal product and the demand for labour
16. The value of the marginal product of labour (VMPL) will be:
A. | higher than the marginal product of labour |
B. | lower than the marginal product of labour |
C. | equal to the marginal product of labour |
D. | we cannot say without more information |
DIF: Moderate TOP: The value of the marginal product and the demand for labour
17. The value of the marginal product of any input is equal to the marginal product of that input multiplied by the:
A. | marginal cost of the output |
B. | change in total profit |
C. | market price of the output |
D. | additional revenue |
DIF: Easy TOP: The value of the marginal product and the demand for labour
18. The value of the marginal product of labour is equal to the change in:
A. | total revenue with the addition of the last worker |
B. | total cost with the addition of the last worker |
C. | total profit with the addition of the last worker |
D. | marginal cost with the addition of the last worker |
DIF: Easy TOP: The value of the marginal product and the demand for labour
19. The value of the marginal product of labour curve is:
A. | S-shaped |
B. | upward-sloping |
C. | downward-sloping at the start, then upward-sloping at the middle |
D. | downward-sloping |
DIF: Easy TOP: The value of the marginal product and the demand for labour
20. To maximise profit, a competitive firm hires workers up to the point where the:
A. | marginal product and marginal cost curves intersect |
B. | value of the marginal product and marginal revenue curves intersect |
C. | value of the marginal product and the wage curves intersect |
D. | wage and the total revenue curves intersect |
DIF: Easy TOP: The value of the marginal product and the demand for labour
21. The value of the marginal product curve gets its shape from:
A. | diminishing marginal product |
B. | increasing marginal product |
C. | tight labour markets |
D. | a surplus of workers |
DIF: Easy TOP: The value of the marginal product and the demand for labour
22. A competitive, profit-maximising firm hires workers until:
A. | unemployment rates are zero |
B. | the value of the marginal product equals the wage |
C. | marginal product equals zero |
D. | marginal revenue equals zero |
DIF: Easy TOP: The value of the marginal product and the demand for labour
23. A competitive, profit-maximising firm labour demand curve is equal to the:
A. | the total output curve divided by wages |
B. | average level of demand for the final product |
C. | the production function |
D. | the value of marginal product curve |
DIF: Easy TOP: The value of the marginal product and the demand for labour
24. When labour is the only input a firm uses, the marginal cost of a unit of output can be defined as:
A. | wage / (marginal product of labour) |
B. | (marginal product of labour) / wage |
C. | marginal revenue – wage |
D. | marginal product of labour – wage |
DIF: Moderate TOP: The value of the marginal product and the demand for labour
25. Diminishing marginal product is closely related to:
A. | increasing marginal cost |
B. | diminishing marginal cost |
C. | diminishing total cost |
D. | none of the above |
DIF: Easy TOP: The value of the marginal product and the demand for labour
26. The hiring decision of a profit-maximising firm is directly linked to the:
A. | relationship between labour inputs and output described by the production function |
B. | value of leisure time to a worker |
C. | number of workers available for work |
D. | marginal satisfaction that a worker receives from labour |
DIF: Easy TOP: The value of the marginal product and the demand for labour
27. The marginal product of a worker is equivalent to:
A. | the total amount of output produced by all workers combined |
B. | the amount of output produced by the average worker |
C. | the amount of output an individual worker contributes to the total output of a firm |
D. | none of the above |
DIF: Easy TOP: The value of the marginal product and the demand for labour
28. When a production function exhibits a marginal product of labour that is diminishing (but positive):
A. | output declines as more workers are employed |
B. | the firm should never increase its employment |
C. | output increases, but at a decreasing rate as more workers are employed |
D. | the firm cannot be maximising profit |
DIF: Moderate TOP: The value of the marginal product and the demand for labour
29. When a profit-maximising firm makes a decision to employ a worker, that decision is based on:
A. | the familial relationship between the employer and the employee |
B. | how much output the worker can produce |
C. | the individual contribution that the worker makes to the profit of the firm |
D. | the total output produced by the firm |
DIF: Easy TOP: The value of the marginal product and the demand for labour
30. A worker’s contribution to a firm’s revenue is measured directly by the worker’s:
A. | value of marginal product |
B. | marginal product multiplied by his/her wage |
C. | marginal product minus his/her wage |
D. | contribution to output |
DIF: Moderate TOP: The production function and the marginal product of labour
31. A profit-maximising competitive firm that experiences diminishing marginal product of labour must also be experiencing:
A. | an upward-sloping demand for labour |
B. | a horizontal demand for labour |
C. | a downward-sloping demand for labour |
D. | a diminishing demand for the output |
DIF: Moderate TOP: The competitive profit-maximising firm
32. A profit-maximising employer will always hire up to the point where the:
A. | marginal product is just starting to decline |
B. | marginal product of labour is just starting to rise |
C. | value of marginal product is just equal to market wage |
D. | marginal value of output exceeds marginal cost |
DIF: Easy TOP: The value of the marginal product and the demand for labour
33. Suppose that a profit-maximising firm is increasing employment. A likely reason for this is that the:
A. | wage exceeds the value of the marginal product |
B. | marginal product is rising |
C. | value of the marginal product exceeds the wage |
D. | firm is increasing its market share |
DIF: Moderate TOP: The value of the marginal product and the demand for labour
34. If one observes a profit-maximising firm decreasing employment, it is possible to infer that the:
A. | wage exceeds the value of the marginal product |
B. | firm is losing market share |
C. | firm is not likely to be minimising losses |
D. | value of the marginal product exceeds the market wage |
DIF: Moderate TOP: The value of the marginal product and the demand for labour
35. The profit-maximising employment rule for a competitive firm ensures that:
A. | output price will equal marginal cost |
B. | revenue will be maximised |
C. | total costs will be minimised |
D. | price will always exceed cost of production |
DIF: Easy TOP: The value of the marginal product and the demand for labour
36. Profit-maximising competitive firms hire labour until marginal cost rises to equal:
A. | average wages |
B. | marginal product |
C. | the minimum wage |
D. | the price |
DIF: Easy TOP: The competitive profit-maximising firm
37. A competitive firm will hire workers up to the point at which the value of the marginal product equals the:
A. | wage |
B. | price |
C. | total revenue |
D. | total cost |
DIF: Easy TOP: The value of the marginal product and the demand for labour
38. If the price of bread falls, what will happen to the demand curve for bakers?
A. | it will shift to the right |
B. | it will shift to the left |
C. | it will shift down |
D. | it will remain unchanged; price changes do not shift demand curves |
DIF: Moderate TOP: The output price
39. When the price of computer software rises, the value of the marginal product of computer programmers will:
A. | fall |
B. | rise |
C. | remain unchanged |
D. | fall or rise, either is possible |
DIF: Moderate TOP: The output price
40. Bob has been a private school caretaker for 30 years. For practical purposes, assume that Bob’s productivity never changes. What then, if anything, will decrease the value of the labour that Bob performs?
A. | a decrease in the productivity of the other janitors |
B. | a decrease in janitorial unemployment rates |
C. | a decrease in the tuition fees |
D. | all of the above |
DIF: Moderate TOP: The output price
41. Jack the physical therapist invents a new wrist-brace that allows assembly line workers to work without suffering the effects of carpal-tunnel syndrome, thus making the workers more productive. The demand for assembly line workers will:
A. | fall |
B. | rise |
C. | remain unchanged |
D. | fall as long as price exceeds marginal cost |
DIF: Moderate TOP: Technological change
42. Which of the following events would cause an increase in the labour supply curve?
A. | a lower retirement age |
B. | more married women deciding to work |
C. | fewer married men deciding to work |
D. | tighter restrictions on immigration policy |
DIF: Moderate TOP: Changes in tastes
43. What happens to the labour supply in the pear-picking market when the apple pickers get a wage rise?
A. | the labour supply will fall |
B. | the labour supply will stay constant until the wages paid to pear pickers change |
C. | the invisible hand of the market will cause an increase in supply |
D. | it may fall or rise, depending on the price of pears |
DIF: Difficult TOP: Changes in alternative opportunities
44. What happens to the labour supply curves in both countries when New Zealand workers immigrate to the Australia?
A. | labour supply increases in Australia and decreases in New Zealand |
B. | labour supply increases in New Zealand and decreases in Australia |
C. | labour supply decreases in New Zealand and decreases in Australia |
D. | labour supply increases in Australia and increases in New Zealand |
DIF: Difficult TOP: Immigration
45. Which of the following factors would lead to an increase in the supply of labour?
A. | a country experiencing an increase of immigrant labour |
B. | the price of a firm’s final product increasing |
C. | the wage rate increasing |
D. | a country tightening border restrictions to limit immigrant labour |
DIF: Moderate TOP: Immigration
46. Suppose that a change to early retirement laws leads to a decrease in labour supply. This means that:
A. | the marginal productivity of workers always decreases |
B. | profit-maximising firms increase employment |
C. | wages decrease as long as labour demand is downward-sloping |
D. | wages increase as long as supply is downward-sloping |
DIF: Moderate TOP: Changes in alternative opportunities
47. When a labour market experiences a surplus of labour, there is downward pressure on:
A. | wages |
B. | the marginal productivity of labour |
C. | final product price |
D. | the demand for labour |
DIF: Easy TOP: Shifts in labour supply
48. Rocchetta Industries manufactures and supplies bottled water in Mexico. As a result of a contamination of water supplies at many of Mexico’s resort communities, the demand for bottled water has increased. According to the information provided, we would expect the value of marginal product for Rocchetta Industries workers to:
A. | rise |
B. | fall |
C. | be offset by a decrease in wages |
D. | be unaffected by a rise in demand for bottled water |
DIF: Difficult TOP: What causes the labour demand curve to shift?
49. Which of the following could increase labour demand?
A. | a decrease in final product price |
B. | an increase in the amount of capital available for workers to use |
C. | a decrease in the marginal productivity of workers |
D. | all of the above |
DIF: Easy TOP: What causes the labour demand curve to shift?
50. Which of the following could decrease labour demand?
A. | an increase in migrant workers |
B. | a decrease in demand for the final product produced by labour |
C. | a decrease in the labour supply |
D. | an increase in the marginal productivity of workers |
DIF: Easy TOP: What causes the labour demand curve to shift?
51. The relationship between labour productivity and wages is that if:
A. | wages rise then labour productivity will rise |
B. | labour productivity falls then wages will rise |
C. | labour productivity rises then wages will rise |
D. | none of the above |
DIF: Easy TOP: The value of the marginal product and the demand for labour
52. A key determinant of labour productivity is:
A. | the market for final product demand |
B. | the amount of physical capital available to workers |
C. | the cultural value of work effort |
D. | labour market supply |
DIF: Moderate TOP: Technological change
53. An important determinant of labour productivity is the:
A. | amount of technological knowledge available to workers |
B. | market for the final product produced by labour |
C. | level of minimum wage |
D. | elasticity of labour supply |
DIF: Easy TOP: Case study: Productivity and wages
54. When firms are able to increase the amount of physical capital available to workers, the:
A. | value of the marginal product of labour will increase |
B. | final product price will increase |
C. | value of the marginal product of labour will decrease |
D. | marginal product of labour will decline |
DIF: Moderate TOP: The other factors of production: Land and capital
55. When workers are able to augment their stock of human capital, they can expect to:
A. | decrease the value of their marginal product of labour |
B. | increase the final product price |
C. | receive higher wages that reflect an increase in the value of their marginal product |
D. | increase their value of marginal product, but this is unlikely to lead to higher wages |
DIF: Moderate TOP: Technological change
56. When workers are in an industry that is experiencing rapid improvements in technology, they can expect to:
A. | see their wages decline |
B. | experience wage increases, as their productivity is enhanced |
C. | see a reduction in the need for physical capital |
D. | see a reduction in demand for final products |
DIF: Moderate TOP: Technological change
57. The accumulation of machinery and buildings used in the production of new goods and services is referred to as:
A. | financial equity |
B. | capital stock |
C. | capital flow |
D. | financial capital |
DIF: Easy TOP: The other factors of production: Land and capital
58. Consider a sawmill that processes logs into timber. The drying kilns at the sawmill are an example of:
A. | timber flows |
B. | a flow of services from capital |
C. | a stock of capital |
D. | automation |
DIF: Easy TOP: Introduction
59. The purchase price of capital is:
A. | the price a person pays to own that factor of production indefinitely |
B. | the price received from the flow of some capital services |
C. | the value of the capital to the firm |
D. | always less than the rental price |
DIF: Easy TOP: The other factors of production: Land and capital
60. The rental price of capital is:
A. | the price paid to use capital for a limited time period |
B. | the price paid for ownership of the capital |
C. | always more than the purchase price |
D. | determined outside the realm of factor markets |
DIF: Easy TOP: Linkages among the factors of production
61. The purchase price of land is:
A. | the price received from the flow of some land services |
B. | the value of the land to the firm over a time period |
C. | always less than the rental price |
D. | the price a person pays to own the factor of production |
DIF: Easy TOP: Equilibrium in the markets for land and capital
62. The rental price of land is:
A. | the price paid for ownership of the land |
B. | always more than the purchase price |
C. | the price paid for the flow of services from land over a specified time period |
D. | determined outside the realm of conventional factor markets |
DIF: Easy TOP: Equilibrium in the markets for land and capital
63. The market wage is:
A. | unaffected by the stock of labour |
B. | the purchase price of a labourer |
C. | the rental price of labour services |
D. | a payment to labour stock |
DIF: Easy TOP: Equilibrium in the markets for land and capital
64. Land resources are compensated according to the:
A. | absolute level of production from the land |
B. | number of workers it can support |
C. | value of the marginal product of land |
D. | purchase price of the land stock |
DIF: Easy TOP: Equilibrium in the markets for land and capital
65. The flow from capital resources is compensated according to the:
A. | carrying capacity of the capital |
B. | value of the marginal product of capital |
C. | purchase price of the capital stock |
D. | absolute level of production of final goods and services |
DIF: Easy TOP: Linkages among the factors of production
66. Because of diminishing returns, a factor in abundant supply has a:
A. | low marginal product and a low rental price |
B. | low marginal product and a high rental price |
C. | high marginal product and a low rental price |
D. | high marginal product and a high rental price |
DIF: Easy TOP: Linkages among the factors of production
67. The market for apples is competitive, as is the market for apples pickers. An increase in price of apples will cause:
A. | the labour demand curve to shift and the quantity of labour to increase |
B. | the labour demand curve to stay constant and the quantity of labour to increase |
C. | the labour demand curve to shift and the quantity of labour to stay constant |
D. | the labour demand curve to stay constant and the quantity of labour to stay constant |
DIF: Moderate TOP: What causes the labour demand curve to shift
68. Suppose a firm is operating in a competitive product market with competitive factor markets. Further, assume labour is the firm’s only factor of production. Which of the following conditions will ensure the firm is maximising profit? (Let P be the price of the good, MPL the marginal product of labour, W the wage rate, and MR the marginal revenue of the good.)
A. | P = W |
B. | P x MPL = W |
C. | MPL = W |
D. | MR = P x MPL |
DIF: Moderate TOP: the value of the marginal product and the demand for labour
Table 18-1
Number of Workers | Output | Marginal Product of Labour | Value of Marginal Product of Labour | Wage | Marginal Profit |
0 | 0 | ||||
1 | 25 | 25 | $125 | $40 | $85 |
2 | 45 | 20 | $100 | $40 | $60 |
3 | 60 | 15 | $75 | $40 | $35 |
4 | 70 | 10 | $50 | $40 | $10 |
5 | 75 | 5 | $25 | $40 | -$15 |
69. Refer to Table 18-1. What is the market price of the final good?
A. | $5 |
B. | $10 |
C. | $15 |
D. | $20 |
DIF: Difficult TOP: The value of the marginal product and the demand for labour
70. Refer to Table 18-1. It is apparent from this table that increasing marginal product:
A. | never occurs |
B. | occurs until the second worker is hired |
C. | occurs until the third worker is hired |
D. | occurs until the fourth worker is hired |
DIF: Difficult TOP: The value of the marginal product and the demand for labour
71. Refer to Table 18-1. If the firm hires three workers, the two workers together produce:
A. | 25 units |
B. | 45 units |
C. | 60 units |
D. | 75 units |
DIF: Difficult TOP: The value of the marginal product and the demand for labour
72. Refer to Table 18-1. What is the marginal product of the fourth worker?
A. | 10 |
B. | 15 |
C. | 20 |
D. | 25 |
DIF: Difficult TOP: The value of the marginal product and the demand for labour
73. Refer to Table 18-1. The change in marginal product as the number of workers increases exemplifies a property called:
A. | supply and demand |
B. | labour theory |
C. | diminishing marginal product |
D. | utility maximisation |
DIF: Difficult TOP: The value of the marginal product and the demand for labour
74. Refer to Table 18-1. What is the marginal profit of the fourth worker?
A. | –$15 |
B. | $10 |
C. | $35 |
D. | $50 |
DIF: Difficult TOP: The value of the marginal product and the demand for labour
75. Refer to Table 18-1. What is the fourth worker’s contribution to total revenue?
A. | –$15 |
B. | $10 |
C. | $25 |
D. | $50 |
DIF: Difficult TOP: The value of the marginal product and the demand for labour
76. Refer to Table 18-1. How many workers will a profit-maximising firm hire?
A. | two |
B. | three |
C. | four |
D. | five |
DIF: Difficult TOP: The value of the marginal product and the demand for labour
77. Refer to Table 18-1. When the second worker is hired, what is the change in profit?
A. | $85 |
B. | $60 |
C. | $100 |
D. | $40 |
DIF: Difficult TOP: The value of the marginal product and the demand for labour
78. Refer to Table 18-1. A profit-maximising firm will hire workers as long as the value of the marginal product of labour equals or exceeds:
A. | $0 |
B. | $40 |
C. | $50 |
D. | $70 |
DIF: Difficult TOP: The value of the marginal product and the demand for labour
Table 18-2
The production details of a small apple farm are shown below. Suppose the market for both apple and apple pickers is competitive, with a current market price for a box of apples being $10. Further, assume apple pickers are the sole marginal cost faced by the farmer in selling his product.
Labour (number of workers) | Output (boxes per day) | Marginal product of labour | Value of the marginal product of labour | Wage | Marginal profit |
0 | 0 | - | 200 | $100 | |
1 | 20 | 20 | 160 | $100 | $100 |
2 | 36 | 120 | $100 | $60 | |
3 | 48 | 12 | $100 | ||
4 | $100 | ||||
5 | 60 | 4 | $100 | -$60 |
79. Refer to Table 18-2. What is the marginal product of labour of the fourth worker?
A. | 12 |
B. | 56 |
C. | 8 |
D. | 4 |
DIF: Moderate TOP: The production function and the marginal product of labour
80. Refer to Table 18-2. What is value of the marginal product of labour of the fourth worker?
A. | $120 |
B. | $160 |
C. | $80 |
D. | $40 |
DIF: Moderate TOP: The production function and the marginal product of labour
81. Refer to Table 18-2. What is marginal profit from adding a third worker?
A. | -$20 |
B. | $20 |
C. | $80 |
D. | $40 |
DIF: Moderate TOP: The production function and the marginal product of labour
82. Refer to Table 18-2. How many workers should the farmer hire to maximise profit?
A. | two |
B. | three |
C. | four |
D. | five |
DIF: Moderate TOP: The production function and the marginal product of labour
Graph 18-1
This graph represents the value of marginal product for a firm that sells its product in a competitive market. Use the graph to answer the following question(s).
83. Refer to Graph 18-1. The value of the marginal product curve shown here is equivalent to which of the following?
A. | the demand curve for labour |
B. | the supply curve for labour |
C. | the labour production function |
D. | the total revenue curve |
DIF: Moderate TOP: The value of the marginal product and the demand for labour
84. Refer to Graph 18-1. The shape of the curve suggests the presence of:
A. | increasing returns to scale |
B. | increased productivity with increased labour |
C. | decreased productivity with decreased labour |
D. | diminishing marginal product |
DIF: Moderate TOP: The value of the marginal product and the demand for labour
85. Refer to Graph 18-1. To maximise profit, a firm would hire labour at a level:
A. | greater than Q* |
B. | equal to Q* |
C. | less than Q* |
D. | there is not enough information; the supply curve is needed to make this decision |
DIF: Moderate TOP: The value of the marginal product and the demand for labour
86. Refer to Graph 18-1. If a firm were operating at a level of output below Q*, hiring more workers would:
A. | increase marginal product |
B. | decrease profit |
C. | increase profit |
D. | decrease the price of the final good |
DIF: Moderate TOP: The value of the marginal product and the demand for labour
Graph 18-2
87. Refer to Graph 18-2. If the apple pickers start working fewer hours (by taking more vacation time), the equilibrium wage will:
A. | fall below W1 due to a shift in supply |
B. | rise above W1 due to a shift in supply |
C. | fall below W1 due to a shift in demand |
D. | rise above W1 due to a shift in demand |
DIF: Difficult TOP: Equilibrium in the labour market
88. Refer to Graph 18-2. If the price of apples increases, the:
A. | demand curve will shift up |
B. | demand curve will shift down |
C. | supply curve will shift up |
D. | supply curve will shift down |
DIF: Moderate TOP: Equilibrium in the labour market
89. Refer to Graph 18-2. If the price of apples increases, wage will:
A. | fall and less apple pickers will be hired |
B. | fall and more apple pickers will be hired |
C. | rise and less apple pickers will be hired |
D. | rise and more apple pickers will be hired |
DIF: Difficult TOP: Equilibrium in the labour market
90. What does a firm’s labour demand curve represent?
A. | the number of workers that are willing to work at any given wage |
B. | the number of workers that the firm is willing to hire at any given wage |
C. | quantity of labour supplied at the market wage |
D. | the marginal product of labour |
DIF: Moderate TOP: The value of the marginal product and the demand for labour
91. How much labour will a competitive, profit-maximising firm hire?
A. | the firm will hire until marginal product equals the wage |
B. | the firm will hire until the price of the final good equals the wage |
C. | the firm will hire until the value of the marginal product equals the wage |
D. | the firms will hire until the price of the final good equals the marginal product |
DIF: Easy TOP: The value of the marginal product and the demand for labour
92. Technological advancements tend to do what to the labour demand curve?
A. | shift the labour demand curve right (that is, increase labour demand) |
B. | shift the labour demand curve left (that is, decrease labour demand) |
C. | have no effect on the labour demand curve |
D. | could shift the labour demand curve either left or right |
DIF: Easy TOP: The value of the marginal product and the demand for labour
93. The Luddite revolt:
A. | occurred in England prior to the industrial revolution |
B. | saw the government restricting the spread of new technology to protect skilled knitters |
C. | saw owners of weaving machines lobby parliament to restrict unfair competition from low-paid skilled knitters |
D. | led to the term luddite to describe anyone opposed to new technology. |
DIF: Moderate TOP: FYI: the Luddite revolt
94. Jason runs an apple farm and sells them at market, along with many other sellers. Recent changes to working holiday visa laws mean that there has been an increase in the supply of people willing to pick apples. This is likely to lead to a:
A. | fall in the marginal product of labour |
B. | an increase in unemployment |
C. | situation where Jason’s revenue decreases |
D. | situation where Jason’s long-run profit increases |
DIF: Moderate TOP: What causes the labour supply curve to shift?
95. If the wage rate is artificially set higher than the equilibrium wage rate, this will lead to:
A. | unemployment |
B. | excess demand for labour |
C. | the value of the marginal product of labour no longer equaling the wage rate |
D. | firms failing to maximise profits |
DIF: Easy TOP: Equilibrium in the labour market
96. The labour supply curve is fundamentally a representation of the trade-off people face between which of the following?
A. | work and wage |
B. | wage and productivity |
C. | work and leisure |
D. | technology and wage |
DIF: Moderate TOP: The trade-off between work and leisure
97. If workers respond to an increase in the opportunity cost of leisure by taking less of it, their labour supply curve is:
A. | downward-sloping |
B. | upward-sloping |
C. | horizontal |
D. | vertical |
DIF: Moderate TOP: The trade-off between work and leisure
98. Competitive firms hire an additional worker only if the additional profit created by the newly hired worker exceeds:
A. | the revenue collected |
B. | the wage she is paid |
C. | her marginal product |
D. | the value of her marginal product |
DIF: Easy TOP: Equilibrium in the labour market
99. In the fourteenth century, the Black Death caused:
A. | wages to rise and rents to rise |
B. | wages to rise and rents to fall |
C. | wages to fall and rents to rise |
D. | wages to fall and rents to fall |
DIF: Easy TOP: Linkages among the factors of production
100. In the fourteenth century the Black Death killed somewhere between 30 and 60 per cent of the European workforce. Beside the human tragedy, the effect of the outbreak on the remaining workers was to:
A. | raise their marginal productivity |
B. | decrease their average productivity |
C. | decrease the value of their marginal productivity of labour |
D. | we cannot say without more information |
DIF: Moderate TOP: Shifts in labour supply
101. What happens to the profit earned by apple producers and the wage earned by apple pickers when the price of apples rises?
A. | both profit and wage will rise |
B. | profit will rise and wage will fall |
C. | profit will fall and wage will rise |
D. | both profit and wage will fall |
DIF: Moderate TOP: Shifts in labour demand
102. What happens to the profit earned by apple producers and the wage earned by apple pickers when the price of apples falls?
A. | both profit and wage will rise |
B. | profit will rise and wage will fall |
C. | profit will fall and wage will rise |
D. | both profit and wage will fall |
DIF: Moderate TOP: Shifts in labour demand
156. What happens to the demand for piano tuners and the wage paid to piano tuners when the price of pianos increases?
A. | demand for tuners increases, and so does their wage |
B. | demand for tuners increases, and their wages fall |
C. | demand for tuners falls, and so does their wage |
D. | demand for tuners falls while their wage rises |
DIF: Moderate TOP: The value of the marginal product and the demand for labour
103. What happens to the demand for piano tuners and the wage paid to piano tuners with the implementation of improved tuning instruments?
A. | demand for tuners increases, and so does their wage |
B. | demand for tuners increases, and their wages fall |
C. | demand for tuners falls, and so does their wage |
D. | demand for tuners falls while their wage rises |
DIF: Moderate TOP: The value of the marginal product and the demand for labour
104. The equilibrium rental income paid to landowners at any point in time equals the:
A. | marginal product of land |
B. | value of the marginal product of land |
C. | purchase price of land |
D. | wage paid to workers |
DIF: Easy TOP: Linkages among the factors of production
105. The equilibrium rental income paid to the owners of capital at any point in time equals the:
A. | value of the marginal product of capital |
B. | marginal product of capital |
C. | purchase price of capital |
D. | wage paid to workers |
DIF: Easy TOP: Equilibrium in the markets for land and capital
SHORT ANSWER
1. Describe the difference between a diminishing marginal product of labour and a negative marginal product of labour. Why would a profit-maximising firm always choose to operate where the marginal product of labour is decreasing (but not negative)?
DIF: Difficult TOP: The production function and the marginal product of labour
2. Explain how a firm values the contribution of workers to its profitability. Would a profit-maximising competitive firm ever stop increasing employment as long as marginal product is rising? Explain your answer.
DIF: Difficult TOP: The value of the marginal product and the demand for labour
3 Describe the process by which the market for capital and the market for land reach equilibrium. As part of your description, elaborate on the role of the stock of the resource versus the flow of services from the resource.
DIF: Moderate TOP: Linkages among the factors of production
4. Describe the difference between the purchase price of capital and the rental price of capital. If you know the value of marginal product from the flow of capital services, how would you determine the market price for the capital stock?
DIF: Moderate TOP: Equilibrium in the markets for land and capital
5. The government of Fairlandia has announced a new policy requiring all employers to subsidise the childcare arrangements of their workers with young children. For simplicity, suppose that all of the workforce in Fairlandia have young children.
What effect would such a policy have on the value of the marginal product of labour? How would this affect the demand for labour? Assuming there is no change in labour supply, what will be the policy’s impact on wages and total employment? Why might the labour supply curve shift as a result of this policy?
DIF: Difficult TOP: Shifts in labour demand
6. Using the theory of wage determination, explain why wages in developing countries are typically quite low.
DIF: Moderate TOP: Case study: Productivity and wages
7. A recent flood in Queensland has destroyed much of the farmland used to cultivate bananas and tomatoes that lies in fertile regions near the rivers. Describe the effect of the flood on the marginal productivity of land, labour and capital. How would the flood affect the price of inputs? Provide some examples.
DIF: Difficult TOP: Linkages among the factors of production
8. Suppose that labour is the only input used by a perfectly competitive firm. The firm can hire workers for $160 per day. Each unit sells for $30. The firm’s production function is as follows:
Labour Output
0 0
1 8
2 15
3 21
4 26
5 30
6 33
Calculate the value of the marginal product of labour at each input level, then determine how much labour the firm will employ.
DIF: Moderate TOP: The value of the marginal product and the demand for labour