Exam Questions Ch.16 Employment and Pricing of Inputs 406 - Microeconomics Theory and Applications 13th Edition | Test Bank with Answer Key by Edgar K. Browning, Mark A. Zupan. DOCX document preview.
Package: Test Bank
Title: Microeconomics: Theory and Application, 13e
Chapter Number: 16
Question Type: Multiple Choice
1. The law of diminishing marginal returns, when applied to labor, states that:
a. each worker makes a very small contribution to the total output.
b. each worker adds more to total output than the previous worker.
c. each additional worker contributes a smaller increase to total output.
d. each additional worker causes average output to rise at an increasing rate.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
2. The marginal product of labor shows:
a. the total productivity of all the labor employed.
b. the average output produced by the labor employed.
c. the extra revenue from the output produced by the last worker.
d. the extra output produced by the last worker hired.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
3. The following table shows the total number of pizzas produced by seven workers.
Marginal returns from labor diminishes from the _____ worker.
a. fifth
b. second
c. third
d. sixth
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
4. The following table shows the total number of pizzas produced by seven workers.
Marginal product becomes negative from the _____ worker.
a. third
b. fourth
c. sixth
d. seventh
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
5. The marginal value product of labor is equal to:
a. the marginal product of labor multiplied by the per-unit price of labor.
b. the marginal product of labor multiplied by the per-unit price of output.
c. the average product of labor multiplied by the per-unit price of capital.
d. the average product of labor multiplied by the per-unit price of output.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
6. The marginal value product of labor measures:
a. the profit that a firm receives by selling the extra output made by an extra worker.
b. the addition made to total output by an additional worker.
c. the revenue a firm receives by selling the total output made by all workers.
d. the extra revenue earned by a firm selling the extra output made by an extra worker.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
7. Given the law of diminishing marginal returns, the marginal value product of labor curve for a competitive firm _____, when other inputs are fixed.
a. will be upward-sloping
b. coincides with the firm’s average revenue curve
c. is horizontal at the price level
d. is the same as the firm’s demand curve for labor
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
8. The marginal value product of labor curve for a competitive firm is:
a. upward-sloping because marginal product of labor and capital are diminishing.
b. downward-sloping because marginal product of labor is diminishing.
c. upward-sloping because marginal product of labor and marginal revenue are diminishing.
d. downward-sloping because average product of labor is diminishing.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
9. A profit-maximizing competitive firm will hire labor up to the point where _____.
a. the price of the good equals the marginal value product of labor
b. the wage rate equals marginal product of labor
c. the wage rate equals marginal value product of labor
d. the wage rate equals the marginal revenue
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
10. The following table shows the total number of pizzas produced by 7 workers.
If the pizza industry is competitive and the price of a pizza is $10, then which of the following is true?
a. The marginal value product of the third worker is $50.
b. The marginal value product of the fifth worker is $10.
c. The marginal product of the fourth worker is 21 pizzas.
d. The marginal product of the second worker is 6 pizzas.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
11. The following table shows the total number of pizzas produced by 7 workers.
If the pizza industry is competitive and the price of a pizza is $10, then which of the following is correct?
a. The total revenue from the sale of 4 pizzas is $30.
b. The marginal value product of the fifth worker is $20.
c. The marginal product of the fourth worker is 2 pizzas.
d. The marginal revenue from selling the fifth pizza is $-10.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
12. The following table shows the total number of pizzas produced by 7 workers.
If the pizza industry is competitive, the price of a pizza is $10, and the daily wage of a worker $30, then the pizza shop will hire _____ workers to maximize profits.
a. 2
b. 3
c. 4
d. 5
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
13. Assume that a competitive firm sells its product for $5 per unit. The firm wants to increase the number of workers employed from 100 to 101 and expects output to rise from 400 units to 410 units. The firm pays a constant wage of $8 per hour to all of its workers. Based on the given information, the marginal value product of the 101st worker is _____.
a. $5
b. $10
c. $50
d. $80
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
14. A competitive firm produces an output of 200 units for a price of $15 per unit. The extra output produced by one extra worker is 5 units. In order to maximize it profit, the firm should pay a wage equal to _____.
a. $20
b. $75
c. $15
d. $10
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
15. For a profit-maximizing firm that is a price taker in the output market and a wage taker in the labor market, which of the following will be true?
a. The marginal revenue product will be higher than the marginal value product.
b. The marginal cost of labor must be lesser than the price of output.
c. The marginal value product of labor will equal the wage rate.
d. The marginal revenue from an extra unit sold will be higher than price.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
16. Assume that the marginal product of labor employed by a competitive firm is two units and that the wage rate is $10. To maximize profits, the firm will hire an extra unit of labor to the point where the product price is equal to _____.
a. $10
b. $3
c. $4
d. $5
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
17. When a competitive labor market is in equilibrium:
a. the marginal product of labor equals the wage rate paid to labor.
b. workers are paid their marginal value product.
c. the labor employed by each firm is equal.
d. the marginal revenue is equal to the wage rate.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
18. The following table shows the number of bread loaves that can be produced per hour at various levels of labor use. The bakery is a perfectly competitive firm.
Labor | Total output |
1 | 5 |
2 | 16 |
3 | 30 |
4 | 40 |
5 | 45 |
6 | 48 |
7 | 49 |
If the price of bread is $4 per loaf and the hourly wage rate is $12 per hour, how many workers will the profit-maximizing bakery hire?
a. 3
b. 4
c. 5
d. 6
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
19. The following table shows the number of bread loaves that can be produced per hour at various levels of labor use. The bakery is a perfectly competitive firm.
Labor | Total output |
1 | 5 |
2 | 16 |
3 | 30 |
4 | 40 |
5 | 45 |
6 | 48 |
7 | 49 |
If the price of bread is $2 per loaf and the wage rate is $20 per hour, how many workers will the profit maximizing firm hire?
a. 3
b. 4
c. 5
d. 6
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
20. Suppose a competitive firm produces 100 units of X for a price of $10 a unit. The firm employs labor such that the marginal product of labor is 20. The wage paid for one unit of labor is $60. Given that capital is kept fixed, the firm _____.
a. is in equilibrium
b. is suffering an economic loss
c. should increase production
d. should reduce output
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
21. “The fact that a college professor who has a higher marginal product earns a lower wage than a football coach, is proof that sports is valued more than education.” Assuming that the markets for professors and coaches are competitive, one can conclude that this conclusion is essentially:
a. accurate because the higher average wage shows that the demand for football coaches is higher than the demand for a faculty member.
b. accurate because a higher marginal product indicates that college professors are more productive than football coaches and yet earn a lower wage.
c. faulty because the number of professors employed is higher than the number of football coaches employed.
d. faulty because wages depend not only on the marginal product of the worker but also on the price of the final product.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
22. If a competitive firm hires workers to a point where the wage exceeds the MVPL:
a. reducing the level of employment will increase profits.
b. the wage rate needs to be increased to maximize profits.
c. the total cost must be greater than total revenue.
d. the firm is maximizing its profits.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
23. Given that w is the wage rate and MPL is the marginal product of labor (the only variable input), w/MPL shows:
a. the extra output obtained from hiring one more worker.
b. the marginal cost of producing one more unit of output.
c. the average variable cost of hiring one more unit of labor.
d. the marginal product from hiring one more unit of labor.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
24. Assume that labor and capital are the only two inputs used in production. Given that both inputs are variable, which of the following would lead to a movement along the labor demand curve?
a. A change in the wage rate
b. A change in the productivity of labor
c. An increase in the price of the final product
d. A decrease in the employment of capital
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
25. Suppose the marginal value product curve of labor is drawn with wage on the vertical axis and quantity of labor on the horizontal axis. With an increase in the employment of other inputs, the marginal value product curve of labor will _____.
a. shift upward
b. shift downward
c. not change
d. become horizontal
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
26. Which of the following will lead to an upward shift of a competitive firm's marginal value product curve for labor?
a. A decrease in the price of the final product
b. An increase in the wage rate
c. An increase in the amount of other inputs used
d. A decrease in the demand for the final product
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
27. When all inputs are variable, a competitive firm’s labor demand curve is:
a. more inelastic than the short-run input demand curve.
b. a vertical line with a zero slope.
c. derived keeping the prices of other inputs constant.
d. the same as the marginal value product curve.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
28. Two inputs, labor and capital, are considered complements if:
a. a fall in the price of labor leads to a fall in the price of capital.
b. they can replace each other in the production process.
c. a fall in the price of labor leads to an increase in the price of capital.
d. increasing the quantity of labor increases the marginal product of capital.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
29. Two inputs, labor and capital, are considered substitutes if:
a. a fall in the price of labor leads to no change in the price of capital
b. the marginal rate of technical substitution of labor for capital is less than one.
c. a fall in the price of labor leads to an increase in the price of capital
d. increasing the quantity of labor decreases the marginal product of capital
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
30. Given that the rental rate of capital is $4,000 per month and the wage rate is $8,000 per month, what is the slope of the isocost line when labor is measured on the horizontal axis and capital on the vertical axis?
a. 4
b. 2
c. 0.5
d. 0.8
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
31. The following figure shows the isoquants, IQ1 and IQ2, for a competitive firm.
As compared to point B, the firm uses _____ at point A.
a. less labor and more capital
b. more labor and less capital
c. less capital and labor
d. more capital and labor
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
32. The following figure shows the isoquants, IQ1 and IQ2, for a competitive firm.
Which of the following is true at point C?
a. At point C, the marginal product of labor and capital is maximized.
b. Point C identifies the level of output that gives the firm the highest marginal revenue.
c. Point C identifies the least cost method of producing output Q1.
d. Point C shows that the firm operates with constant returns to scale.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
33. Consider a firm’s isocost line where labor is measured on the horizontal axis and capital on the vertical axis. If everything else is unchanged, a fall in the price of labor would:
a. increase the horizontal intercept of the isocost line.
b. shift the isocost line outward away from the origin.
c. shift the isocost line inward toward the origin.
d. increase the vertical intercept of the isocost line.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
34. Consider a firm’s isocost line where labor is measured on the horizontal axis and capital on the vertical axis. If everything else is unchanged, an increase in the price of capital would:
a. decrease the horizontal intercept of the isocost line.
b. shift the isocost line outward away from the origin.
c. shift the isocost line inward toward the origin.
d. decrease the vertical intercept of the isocost line.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
35. The following figure shows the isoquants, IQ1 and IQ2, for a competitive firm.
The firm was initially at point A. It will move to point B if:
a. the price of the final product increases.
b. the wage rate increases.
c. the cost of capital rises.
d. the demand for the final product falls.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
36. The following figure shows the isoquants, IQ1 and IQ2, for a competitive firm.
The move from point A to point B represents the _____ of an input price change.
a. substitution effect
b. output effect
c. income effect
d. effect of diminishing returns
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
37. The following figure shows the isoquants, IQ1 and IQ2, for a competitive firm.
The move from point B to point C represents the _____ of an input price change.
a. substitution effect
b. output effect
c. income effect
d. effect of diminishing returns
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
38. The following figure shows the marginal cost [MC], average cost [AC], and demand [D] curves for a monopsonist in the labor market.
The firm will move from point B to point C when:
a. the price of capital increases.
b. the total output produced increases.
c. the total output produced falls.
d. the price of labor increases.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
39. Given that labor is on the vertical axis, _____ represents the output effect of an increase in the wage rate.
a. an upward movement along an isoquant
b. a downward movement along an isoquant
c. a downward movement along an expansion path
d. an upward shift of the expansion path
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
40. Given that labor is on the horizontal axis, _____ represents the substitution effect of an increase in the wage rate.
a. an upward movement along an isoquant
b. a downward movement along an isoquant
c. a downward movement along an expansion path
d. an upward shift of the expansion path
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
41. For a competitive firm, with a change in the price of labor, _____ demand curve for labor.
a. the substitution effect reinforces the output effect, leading to a downward-sloping
b. the substitution effect reinforces the output effect, leading to an upward-sloping
c. the substitution effect offsets the output effect, leading to a downward-sloping
d. the output effect offsets the substitution effect, leading to an upward-sloping
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
42. The shape of a competitive firm’s input demand curve when all inputs are variable implies that:
a. the output effect of an input price change outweighs the substitution effect of an input price change leading to lower employment at a lower price.
b. the substitution effect of an input price change outweighs the output effect leading to a lower employment at a lower price.
c. the substitution and output effect of an input price change both lead to higher employment at a lower price.
d. the substitution and output effect of an input price change both lead to higher employment at a higher price.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
43. Which of the following would be a consequence of a fall in the price of the final product in a competitive industry?
a. Each firm’s labor demand curve will shift downward.
b. The marginal value product of labor is higher for each firm.
c. The marginal cost curve for each firm will shift outward away from the origin.
d. The employment of labor in the industry will increase.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
44. Assume that there is an outward shift in the demand for chairs. Which of the following best describes the short-run response within the competitive market for chairs?
a. Existing firms and new firms will expand output by using more of all inputs.
b. Existing firms will keep fixed inputs unchanged and expand output using the variable inputs.
c. Existing firms will increase their profits by producing the same output at a higher price.
d. Existing firms cannot increase production in the short-run so the price of chairs will increase.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
45. Which of the following is true of a competitive industry’s labor demand curve?
a. The industry labor demand curve is a horizontal summation of the individual firm’s demand curves for labor.
b. The industry labor demand curve is less elastic than the individual firm’s demand curves for labor.
c. The industry labor demand curve is a vertical summation of the individual firm’s demand curves for labor.
d. The industry demand curve shows that at a lower price, less of the input is employed in the industry.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
46. The industry demand for an input is called derived demand because:
a. the demand for the input is derived from the demand for the final product.
b. the industry’s input demand curve is the same as the firm’s input demand curve.
c. the demand for the input is derived from the supply of other inputs.
d. the industry’s input demand curve coincides with the marginal product curve of the input.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
47. Which of the following is true of a competitive industry’s demand curve for labor?
a. The demand curve for labor will shift in the same direction as the demand for the product.
b. The industry demand is found by summing each firm's marginal value product.
c. The industry demand for labor is generally more elastic than the individual demand for labor.
d. The demand curve for labor is upward-sloping due to diminishing marginal returns.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
48. Which of the following will lead to a relatively inelastic industry demand for labor?
a. An increase in the use of the fixed input
b. An increase in the wage rate
c. A relatively inelastic demand for the output
d. A reduction in the price of output
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
49. Suppose that a firm that produces widgets employs welders as the labor input for production. The demand for welders is:
a. derived from the total industry output of widgets.
b. represented by the marginal value product curve if the firm is monopolist in the output market.
c. derived from the demand curve for widgets faced by the firm.
d. represented by the marginal revenue product curve if the firm is competitive.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
50. The input demand curve is likely to be relatively more elastic when:
a. the demand for the final product is relatively elastic.
b. it is difficult to substitute the input for another input in production.
c. the supply of other inputs is relatively inelastic.
d. demand for the input is measured over a short time period.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
51. Which of the following will not determine the elasticity of demand for bank tellers, which is a competitive input industry?
a. The elasticity of demand for banking services
b. The availability of automated teller machines (ATMs)
c. The marginal product of ATM technicians
d. The elasticity of supply for computers used to record banking transactions
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
52. The long-run industry demand for labor is likely to be the most elastic when:
a. wages form a significant portion of total costs.
b. firms in the industry face L-shaped isoquants.
c. the supply of other inputs is elastic.
d. the product demand curve is inelastic.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
53. Which of the following is least likely to influence the price elasticity of demand for an input?
a. The input price ratio
b. The price elasticity of demand for the output
c. The rate of substitution of one input for the other
d. The elasticity of supply of other inputs
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
54. Which of the following conditions would be associated with a more elastic input demand curve?
a. A less elastic demand for the final product
b. A higher ease of input substitution in the production process
c. A less elastic supply curve for other inputs
d. A shorter time period
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
55. Which of the following statements is true of the industry demand for labor?
a. The lesser the elasticity of the final product, the higher the elasticity of the industry labor demand curve.
b. The longer the time period allowed for adjustment, the lesser the elasticity of the industry labor demand curve.
c. The lower the substitutability of inputs, the higher the elasticity of the industry labor demand curve.
d. The lower the supply elasticity of other inputs, the lesser the elasticity of the industry labor demand curve.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
56. The input demand curve of an industry is relatively inelastic when:
a. the demand for the final product is relatively elastic.
b. the marginal rate of technical substitution is lower.
c. the supply curves of other inputs is relatively inelastic.
d. price of the input is higher than the price of other inputs.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
57. For a competitive industry, the market input demand curve for labor is:
a. the same as the individual firm’s input demand curve.
b. obtained by vertically aggregating the individual firms’ input demand curves.
c. the horizontal summation of the various industry demand curves for the input.
d. more inelastic the higher the substitutability between inputs.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
58. Suppose the labor supply curve facing all industries in an economy is a vertical line. Given this, which of the following statements about the supply curve of labor confronting any particular industry is true?
a. The supply curve of labor confronting any particular industry will also be vertical because the aggregate supply curve is a horizontal summation of industry supply curves.
b. The supply curve of labor confronting any particular industry will also be inelastic because the stock of labor in the economy is fixed in the short-run.
c. The supply curve of labor confronting any particular industry will be elastic because labor can shift easily from one industry to another.
d. The supply curve of labor confronting any particular industry will be elastic because labor and capital are perfectly substitutable in the short-run.
Learning Objective: Investigate the general shape of an input supply curve.
59. For which of the following is the supply curve of labor likely to be the most inelastic?
a. All industries in the economy
b. A single industry
c. An individual firm
d. A monopolist
Learning Objective: Investigate the general shape of an input supply curve
60. Electricians are employed in multiple industries in an economy. Given other things unchanged, an increase in the demand for electricians in the construction industry will lead to:
a. a reduction in the employment of electricians in other industries.
b. a reduction in the employment of plumbers and architects in the construction industry.
c. a downward sloping labor supply curve in the construction industry.
d. an decrease in the total number of electricians in the economy.
Learning Objective: Investigate the general shape of an input supply curve
61. The supply curve of labor to a competitive firm is:
a. upward-sloping because of the law of diminishing marginal returns.
b. downward-sloping because the supply of labor increases as wages increase.
c. perfectly inelastic because the stock of labor is fixed in the long run.
d. horizontal because the firm can hire as many workers as it wants at the market wage.
Learning Objective: Explain how the price and employment of inputs are determined in an industry.
62. The labor supply curve facing all industries in the economy is most likely to be:
a. horizontal.
b. vertical.
c. upward sloping.
d. downward sloping.
Learning Objective: Investigate the general shape of an input supply curve
63. The input supply curve facing a competitive firm is most likely to:
a. be a downward-sloping curve.
b. be more elastic than the industry supply curve.
c. have a zero slope.
d. be unit-elastic over all levels of employment.
Learning Objective: Investigate the general shape of an input supply curve
64. Which of the following is true of an input that is hired by firms in several industries in the long run?
a. The price of the input is higher in the industry where demand for the input is higher.
b. The price of the input is higher in the industry where the elasticity of demand for the input is higher.
c. The price of the input will remain the same across all the industries.
d. The price of the input will be higher in the industry that has a large number of firms.
Learning Objective: Explain how the price and employment of inputs are determined in an industry.
65. Suppose that lawyers are hired in two industries, A and B. Both industries are in equilibrium with identical labor supply and demand curves. Given other things are unchanged, if the demand for lawyers falls in industry B, the wage rate:
a. will fall in both industries, while employment will fall in B and increase in A.
b. as well as employment will fall in both industries.
c. as well as employment will fall in B, while there will be no change in A.
d. will stay constant since all participants are price-takers, but employment will fall in A and B.
Learning Objective: Show how an input's price and employment level is determined in a multi-industry market.
66. Suppose that computer programmers work in two industries, X and Y. Both industries are in equilibrium and have identical labor supply and demand curves. Given that other things are unchanged, if the demand for programmers in industry X increases, then:
a. wages will rise in both industries and in the long run total employment will increase.
b. wages will rise in both industries while employment increases in X and decreases in Y.
c. wages will rise in both industries while employment decreases in X and increases in Y.
d. wages will rise more in industry X than industry Y and employment will remain unchanged in both industries.
Learning Objective: Show how an input's price and employment level is determined in a multi-industry market.
67. Suppose several industries compete for the available supply of a particular input. In a multi-industry market like this, which of the following statements about the input supply curve facing a single industry will be true?
a. Each industry’s input supply curve is an equal proportion of the total market supply of the input.
b. The vertical summation of the industry input supply curves gives the market supply curve for the input.
c. The smaller the share of the total input employed by the industry, the more elastic its input supply curve.
d. The input supply curve for a single industry in a multi-industry input market is perfectly elastic over all levels of employment of the input.
Learning Objective: Show how an input's price and employment level is determined in a multi-industry market.
68. Given that other inputs are kept fixed, the input demand curve for an output market monopolist is equal to the:
a. marginal value product curve.
b. marginal revenue product curve.
c. marginal cost curve.
d. marginal product curve.
Learning Objective: Examine input demand and employment by an output market monopoly.
69. The input demand curve for an output market monopolist slopes downward because:
a. as the price of the input increases, a higher quantity of the input is employed.
b. marginal product of the input increases as more input is employed.
c. marginal revenue increases as more of the input is employed.
d. price and marginal revenue are inversely related.
Learning Objective: Examine input demand and employment by an output market monopoly.
70. When other inputs are held fixed, the output market monopolist's demand curve for an input:
a. is parallel to the marginal value product curve for that input.
b. is obtained by multiplying the marginal product of that input by marginal revenue.
c. is the same as the demand curve for an input by a competitive firm.
d. equals the marginal value product curve for that input.
Learning Objective: Examine input demand and employment by an output market monopoly.
71. For a perfectly competitive firm, the marginal revenue product of an input will be:
a. represented by a horizontal line at the input price.
b. represented by an upward-sloping curve.
c. the product of the marginal product and marginal cost.
d. the same as the marginal value product.
Learning Objective: Examine input demand and employment by an output market monopoly.
72. Which of the following is true of the marginal value product curve (MVP) and the marginal revenue product curve (MRP) for an output market monopolist?
a. The MVP and the MRP are upward sloping curves that are parallel to each other.
b. The MVP lies above the MRP and is downward-sloping.
c. The MRP and the MVP coincide and are parallel to the horizontal axis.
d. The MRP and the MVP intersect at the equilibrium wage rate.
Learning Objective: Examine input demand and employment by an output market monopoly.
73. Which of the following is true of a profit-maximizing output market monopolist?
a. The monopolist equates the wage rate with the marginal revenue product.
b. The monopolist faces a downward-sloping supply curve for an input.
c. As compared to a competitive firm, an output market monopolist pays a higher price for inputs.
d. The ratio of capital to labor is higher for an output market monopolist than a competitive firm.
Learning Objective: Examine input demand and employment by an output market monopoly.
74. Which of the following is true for a firm that has a monopoly in the output market?
a. The marginal revenue product and marginal value product for the monopolist are equal.
b. The demand curve for an input is the same as the marginal value product curve.
c. The slope of the input demand curve is the same for a monopolist and a competitive firm.
d. Employment of an input is lower under monopoly than under perfect competition.
Learning Objective: Examine input demand and employment by an output market monopoly.
75. In order to maximize profits, an output market monopoly will:
a. pay less than the going wage rate.
b. pay a wage equal to the marginal value product of labor.
c. pay a wage that is less than marginal value product of labor.
d. pay workers a higher-than-competitive wage rate.
Learning Objective: Examine input demand and employment by an output market monopoly.
76. An output market monopoly:
a. pays a wage that is greater than marginal value product of labor.
b. employs fewer workers than would be employed under competition.
c. pays a wage greater than the marginal cost of labor.
d. has an labor demand curve that lies above the marginal value product curve of labor.
Learning Objective: Examine input demand and employment by an output market monopoly.
77. When the input supply curve confronting an individual firm is the same as the market supply of the input, one can conclude that:
a. the firm is a monopsony in the input market.
b. the firm is one of many buyers of the input.
c. the firm does not have any monopoly power in the input market.
d. the input is used in many different industries.
Learning Objective: Define what is meant by monopsony in input markets.
78. The monopsonist’s marginal input cost is greater than its average input cost because:
a. the firm must increase the price it is willing to pay, to increase employment of an input.
b. the monopsonist does not have discretion over the price of the input.
c. the marginal revenue product of labor increases as the number of workers hired increases.
d. the monopsonist faces a downward-sloping input demand curve.
Learning Objective: Define what is meant by monopsony in input markets.
79. For a monopsony buyer of labor, the marginal cost of hiring one more worker is:
a. equal to the wage rate.
b. less than the wage rate.
c. greater than the wage rate.
d. the same as the average cost.
Learning Objective: Define what is meant by monopsony in input markets.
80. Which of the following is true for a firm that is an input market monopsony?
a. In order to increase employment of the input, the firm must lower the wage rate.
b. The price that the monopsonist pays for the input is determined by the height of the input demand curve.
c. The marginal cost of the input exceeds the average cost of the input.
d. The wage paid will equal the marginal cost of the labor input.
Learning Objective: Define what is meant by monopsony in input markets.
81. Which of the following correctly describes a monopsony?
a. A monopsony firm is the sole supplier of an input.
b. In a monopsony market, two or more firms set output assuming the other’s output is constant.
c. A monopsony firm is the sole buyer in an input market.
d. In a monopsony market, a group of firms collude to set prices.
Learning Objective: Define what is meant by monopsony in input markets.
82. A monopsony differs from a monopoly in that:
a. the market capitalization of a monopsony firm is smaller than a monopoly firm.
b. the input price under a monopsony is higher than the input price in a monopoly.
c. a monopsony has market power in the input market while a monopoly has market power in the product market.
d. a monopsony faces a downward-sloping input demand curve while a monopoly faces an upward-sloping input demand curve.
Learning Objective: Define what is meant by monopsony in input markets.
83. Mines located in rural mountain towns in Kentucky and West Virginia are often the only employers in the area. In other words, a mining company in Kentucky would be considered:
a. a monopolist in the labor market.
b. a monopsonist in the labor market.
c. an output-market monopoly.
d. a profit-maximizing competitive firm.
Learning Objective: Define what is meant by monopsony in input markets.
84. The following figure shows the marginal cost [MC], average cost [AC], and demand [D] curves for a monopsonist in the labor market.
When the monopsonist is in equilibrium, the level of labor employed is _____.
a. A
b. B
c. C
d. D
Learning Objective: Define what is meant by monopsony in input markets.
85. The following figure shows the marginal cost [MC], average cost [AC], and demand [D] curves for a monopsonist in the labor market.
When the monopsonist is in equilibrium, the wage rate paid to labor is _____.
a. P1
b. P2
c. P3
d. 0
Learning Objective: Define what is meant by monopsony in input markets.
86. For a firm that is perfectly competitive in the output market but a monopsonist in a particular input market:
a. the price of the final output will exceed the firm's marginal cost of producing output.
b. the price of the final output will be lower than the wage rate.
c. the wage rate will be less than the average cost of labor.
d. the wage rate will be less than the marginal cost of labor.
Learning Objective: Define what is meant by monopsony in input markets.
87. Compared to a competitive labor market, in a monopsony labor market:
a. the level of employment is lower but the wage rate is the same.
b. the level of employment and the wage rate are both lower.
c. the level of employment is the same but the wage rate is lower.
d. the level of employment and the wage rate are both higher.
Learning Objective: Define what is meant by monopsony in input markets.
88. Given the same demand and cost functions, which of the following is true of a monopsony input market as compared to a competitive input market?
a. The employment of inputs is lower in a monopsony market
b. The employment of inputs is the same in both markets.
c. The price paid for inputs is higher in a monopsony market.
d. The price paid for inputs is the same in both markets.
Learning Objective: Define what is meant by monopsony in input markets.
89. The reserve clause in Major League Baseball (MLb., which allowed baseball players to negotiate salary only with the first team that signed them, was removed in 1975. The dismantling of the reserve clause was undertaken to:
a. ensure that players got more playing time.
b. break up the MLB owner’s monopoly power.
c. break up the MLB owner’s monopsony power.
d. allow players to hire their own agents.
Learning Objective: Define what is meant by monopsony in input markets.
Question Type: True/False
90. When a competitive labor market is in equilibrium, the marginal product of labor equals the wage rate paid to labor.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
91. When a competitive labor market is in equilibrium, workers are paid their marginal value product.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
92. When a competitive labor market is in equilibrium, the labor employed by each firm is equal.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
93. When a competitive labor market is in equilibrium, the marginal revenue is equal to the wage rate.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
94. The industry labor demand curve is a horizontal summation of the individual firm’s demand curves for labor.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
95. The industry labor demand curve is less elastic than the individual firm’s demand curves for labor.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
96. The industry labor demand curve is a vertical summation of the individual firm’s demand curves for labor.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
97. The industry demand curve shows that at a lower price, less of the input is employed in the industry.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
98. With a competitive industry’s demand curve for labor, the demand curve for labor will shift in the same direction as the demand for the product.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
99. With a competitive industry’s demand curve for labor, the industry demand is found by summing each firm's marginal value product.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
100. With a competitive industry’s demand curve for labor, the industry demand for labor is generally more elastic than the individual demand for labor.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
101. With a competitive industry’s demand curve for labor, the demand curve for labor is upward-sloping due to diminishing marginal returns.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
102. The lesser the elasticity of the final product, the higher the elasticity of the industry labor demand curve.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
103. The longer the time period allowed for adjustment, the lesser the elasticity of the industry labor demand curve.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
104. The lower the substitutability of inputs, the higher the elasticity of the industry labor demand curve.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
105. The lower the supply elasticity of other inputs, the lesser the elasticity of the industry labor demand curve.
Learning Objective: Derive the market demand curve for an input by aggregating the demand curves of the various firms interested in hiring the input.
106. The price of the input is higher in the industry where demand for the input is higher.
Learning Objective: Explain how the price and employment of inputs are determined in an industry.
107. The price of the input is higher in the industry where the elasticity of demand for the input is higher.
Learning Objective: Explain how the price and employment of inputs are determined in an industry.
108. The price of the input will remain the same across all the industries that use that input.
Learning Objective: Explain how the price and employment of inputs are determined in an industry.
109. The price of the input will be higher in the industry that has a large number of firms.
Learning Objective: Explain how the price and employment of inputs are determined in an industry.
110. For an output market monopolist, the MVP and the MRP are upward sloping curves that are parallel to each other.
Learning Objective: Examine input demand and employment by an output market monopoly.
111. For an output market monopolist, the MVP lies above the MRP and is downward-sloping.
Learning Objective: Examine input demand and employment by an output market monopoly.
112. For an output market monopolist, the MRP and the MVP coincide and are parallel to the horizontal axis.
Learning Objective: Examine input demand and employment by an output market monopoly.
113. For an output market monopolist, the MRP and the MVP intersect at the equilibrium wage rate.
Learning Objective: Examine input demand and employment by an output market monopoly.
114. For a profit-maximizing output market monopolist, the monopolist equates the wage rate with the marginal revenue product.
Learning Objective: Examine input demand and employment by an output market monopoly.
115. For a profit-maximizing output market monopolist, the monopolist faces a downward-sloping supply curve for an input.
Learning Objective: Examine input demand and employment by an output market monopoly.
116. For a profit-maximizing output market monopolist, as compared to a competitive firm, an output market monopolist pays a higher price for inputs.
Learning Objective: Examine input demand and employment by an output market monopoly.
117. For a profit-maximizing output market monopolist, the ratio of capital to labor is higher for an output market monopolist than a competitive firm.
Learning Objective: Examine input demand and employment by an output market monopoly.
118. For a firm that has a monopoly in the output market, the marginal revenue product and marginal value product for the monopolist are equal.
Learning Objective: Examine input demand and employment by an output market monopoly.
119. For a firm that has a monopoly in the output market, the demand curve for an input is the same as the marginal value product curve.
Learning Objective: Examine input demand and employment by an output market monopoly.
120. For a firm that has a monopoly in the output market, the slope of the input demand curve is the same for a monopolist and a competitive firm.
Learning Objective: Examine input demand and employment by an output market monopoly.
121. For a firm that has a monopoly in the output market, employment of an input is lower under monopoly than under perfect competition.
Learning Objective: Examine input demand and employment by an output market monopoly.
122. For a firm that is an input market monopsony, in order to increase employment of the input, the firm must lower the wage rate.
Learning Objective: Define what is meant by monopsony in input markets.
123. For a firm that is an input market monopsony, the price that the monopsonist pays for the input is determined by the height of the input demand curve.
Learning Objective: Define what is meant by monopsony in input markets.
124. For a firm that is an input market monopsony, the marginal cost of the input exceeds the average cost of the input.
Learning Objective: Define what is meant by monopsony in input markets.
125. For a firm that is an input market monopsony, the wage paid will equal the marginal cost of the labor input.
Learning Objective: Define what is meant by monopsony in input markets.
126. A monopsony firm is the sole supplier of an input.
Learning Objective: Define what is meant by monopsony in input markets.
127. In a monopsony market, two or more firms set output assuming the other’s output is constant.
Learning Objective: Define what is meant by monopsony in input markets.
128. A monopsony firm is the sole buyer in an input market.
Learning Objective: Define what is meant by monopsony in input markets.
129. In a monopsony market, a group of firms collude to set prices.
Learning Objective: Define what is meant by monopsony in input markets.
Question Type: Essay
130. Answer the following:
a) A backhoe, a piece of excavating equipment which is mounted on a tractor, acts as both a complement and as a substitute to labor. Explain how it could be used as a complement or a substitute to labor.
b) Explain why the standard of living increases in general, even for labor, when capital substitutes for labor.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
131. Answer the following:
A firm faces total costs, C, price of capital, r, and price of labor, w.
a) With capital (K) on the y-axis and labor (L) on the x-axis, graph a firm’s optimal combination of inputs for producing Q0 units of output.
b) Decompose the total effect of a wage decrease into the substitution and output effects on the same graph.
Learning Objective: Explore the factors influencing the demand for an input by an individual competitive form.
132. Explain the shapes of the supply curve of labor for all industries together and the labor supply curve for a particular industry.
Learning Objective: Investigate the general shape of an input supply curve
133. A monopoly firm faces the output demand curve P = 25 – 0.5Q, where P is the price of the final product and Q is the level of output. The production function is given by Q = 5X, where X is the only input used in production. Each unit of X is bought by the firm at a constant price of $25 per unit. Based on this information, what level of input would the profit-maximizing monopoly employ?
Learning Objective: Examine input demand and employment by an output market monopoly.
134. Assume that a car manufacturing plant in a small town in Michigan in the U.S. is a monopsonist employer of heavy machinery operators. The marginal value product of labor is given by w = 1100 – 20Q where w is the wage rate and Q is the number of heavy machinery operators. The supply of heavy machinery operators is given by w = 200 + 5Q. What is the profit-maximizing level of employment and wage for the car manufacturer? Assume that the plant is perfectly competitive in the output market.
Learning Objective: Define what is meant by monopsony in input markets.
135. Define monopsony in an input market and graphically illustrate equilibrium employment and wages under a monopsony.
Learning Objective: Define what is meant by monopsony in input markets.
136. Suppose that a monopsonist is able to perfectly discriminate among workers and pay each her reservation wage. Graphically illustrate equilibrium employment and wages for a perfectly-discriminating monopsonist. How do they compare to a firm which hires labor in a perfectly competitive market? Assume the firm has no monopoly power and sells output in a competitive market.
Learning Objective: Define what is meant by monopsony in input markets.
137. Using a graph, show the welfare effects of a monopsony input market compared to a perfectly competitive input market. Assume upward sloping cost curves.
Learning Objective: Define what is meant by monopsony in input markets.
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Microeconomics Theory and Applications 13th Edition | Test Bank with Answer Key
By Edgar K. Browning, Mark A. Zupan