Question 1

A change in an input price will alter both production costs and the profit-maximizing output.Thus, a decline in the price of capital will reduce production costs, increase the profit-maximizing output, and thereby increase the demand for labor.This describes the

Accepted Answer

A)  output effect.
B)  substitution effect.
C)  idea of derived demand.
D)  law of diminishing returns.E) A) and B)
F) All of the above

Question 2

The general rule for hiring any input (say, labor)  in the profit-maximizing amount is MRC = MRP.This rule takes the special form W = MRP (where W is the wage rate)  when the

Accepted Answer

A)  labor supply curve is upsloping.
B)  supply of labor is inelastic.
C)  firm is hiring labor under purely competitive conditions.
D)  firm is hiring labor under imperfectly competitive conditions.E) A) and B)
F) A) and D)

Question 3

A technological improvement that causes an increase in the marginal product of a resource will

Accepted Answer

A)  decrease the demand for the resource.
B)  increase the demand for the resource.
C)  decrease the marginal revenue product.
D)  increase the marginal resource cost.E) B) and D)
F) B) and C)

Question 4

Suppose that a union successfully negotiated a 10 percent wage increase and the quantity of labor demanded increased by 10 percent.We can conclude that

Accepted Answer

A)  the labor demand curve must have independently shifted to the right.
B)  labor demand is highly elastic.
C)  the coefficient of labor demand elasticity is less than 1.
D)  labor demand is unit-elastic.E) All of the above
F) A) and D)

Question 5

Which of the following decreases in labor demand is due to a change in the price of a related resource?

Accepted Answer

A)  A decline in the demand for computers in Europe reduces the demand for workers in the domestic computer industry.
B)  The rise of hair salons for both men and women reduces the demand for barbers.
C)  A decrease in the educational skills of manufacturing workers decreases the demand for such workers.
D)  An increase in the price of chemical equipment increases the cost of producing fertilizer, thus decreasing the demand for workers who make fertilizer.E) All of the above
F) B) and C)

Question 6

The demand curve for labor would shift leftward as the result of

Accepted Answer

A)  an increase in the price of the product labor is producing.
B)  a decrease in the productivity of labor.
C)  an increase in the price of labor.
D)  a decrease in the price of capital, provided the output effect exceeds the substitution effect.E) C) and D)
F) A) and B)

Question 7

The MRP curve for labor

Accepted Answer

A)  is downsloping and shows the relationship between wage rates and the quantity of labor demanded.
B)  is perfectly elastic if the firm is selling its output competitively.
C)  is upsloping and lies above the labor supply curve.
D)  will shift location when the wage rate changes.E) A) and D)
F) B) and C)

Question 8

The MRP curve for labor

Accepted Answer

A)  intersects the firm's labor demand curve from above.
B)  is the firm's labor demand curve.
C)  lies below the firm's labor demand curve.
D)  lies above the firm's labor demand curve.E) A) and B)
F) A) and C)

Question 9

A cost-minimizing firm using two inputs, x and y, will employ inputs so that

Accepted Answer

A)  MPx = MPy.
B)  Px / MPy = Py / MPx.
C)  MPx / Px = MPy / Py.
D)  Px = Py.E) A) and D)
F) B) and D)

Question 10

The MRP of labor curve is the firm's labor demand curve.

Accepted Answer

A) True 
 B)False

Question 11

If a firm is selling in an imperfectly competitive product market, then

Accepted Answer

A)  average product will be less than marginal product for any number of workers hired.
B)  the marginal products of successive workers must be sold at lower prices.
C)  the marginal products of successive workers can be sold at higher prices.
D)  the marginal products of successive workers can be sold at a constant price.E) C) and D)
F) A) and D)

Question 12

A business is employing inputs such that the marginal product of labor is 40 and the marginal product of capital is 90.The price of labor is $20, and the price of capital is $30.If the business wants to minimize costs while keeping output constant, then it should

Accepted Answer

A)  use more labor and less capital.
B)  use less labor and less capital.
C)  use less labor and more capital.
D)  make no change in resource use.E) All of the above
F) A) and B)

Question 13

The profit-maximizing and the least-cost combination of inputs are

Accepted Answer

A)  the result of unrelated decisions.
B)  always identical.
C)  such that minimizing costs always results in profit maximization.
D)  such that maximizing profits always entails the least-cost combination of inputs.E) A) and D)
F) A) and C)

Question 14

The demand for airline pilots results from the demand for air travel.This fact is an example of

Accepted Answer

A)  resource substitutability.
B)  rising marginal resource cost.
C)  elasticity of resource demand.
D)  the derived demand for labor.E) A) and C)
F) C) and D)

Question 15

The demand for a resource depends primarily on

Accepted Answer

A)  the supply of that resource.
B)  the demand for the product or service that it helps produce.
C)  the price of that input.
D)  the elasticity of supply of substitute inputs.E) B) and D)
F) None of the above

Question 16

The marginal product of labor and the marginal revenue product of labor are both measured in the same units, that is, units of output.

Accepted Answer

A) True 
 B)False

Question 17

If labor costs are 60 percent of production costs, then a 15 percent increase in wage rates would increase production costs by

Accepted Answer

A)  60 percent.
B)  45 percent.
C)  15 percent.
D)  9 percent.E) A) and B)
F) A) and C)

Question 18

A major criticism of the marginal productivity theory of income distribution is that

Accepted Answer

A)  the demand for labor resources is price inelastic.
B)  achieving equality in incomes will take time.
C)  imperfectly competitive firms are only interested in profit maximization.
D)  property resources like land are unevenly distributed, which leads to income inequality.E) B) and C)
F) All of the above

Question 19

Harry owns a barbershop and charges $6 per haircut.By hiring one barber at $10 per hour, the shop can provide 24 haircuts per eight-hour day.By hiring a second barber at the same wage rate, the shop can now provide a total of 42 haircuts per day.Harry should

Accepted Answer

A)  hire the second barber because he will add $28 to profits.
B)  hire the second barber because he will add $108 to profits.
C)  not hire the second barber, because he is less productive than the first barber.
D)  not hire the second barber, because he will diminish profits.E) None of the above
F) B) and C)

Question 20

To maximize profits, a competitive firm will maximize the difference between MRP and the wage rate for the laborers it hires.

Accepted Answer

A) True 
 B)False

Exam 16: The Demand for Resources

The MRP of labor curve is the firm's labor demand curve.

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A major criticism of the marginal productivity theory of income distribution is that

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If a firm is selling in an imperfectly competitive product market, then

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Which of the following decreases in labor demand is due to a change in the price of a related resource?

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The MRP curve for labor

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The demand for airline pilots results from the demand for air travel.This fact is an example of

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Suppose that a union successfully negotiated a 10 percent wage increase and the quantity of labor demanded increased by 10 percent.We can conclude that

Correct AnswerverifiedShow Answer

A technological improvement that causes an increase in the marginal product of a resource will

Correct AnswerverifiedShow Answer

The demand curve for labor would shift leftward as the result of

Correct AnswerverifiedShow Answer

The general rule for hiring any input (say, labor) in the profit-maximizing amount is MRC = MRP.This rule takes the special form W = MRP (where W is the wage rate) when the

Correct AnswerverifiedShow Answer

The demand for a resource depends primarily on

Correct AnswerverifiedShow Answer

A cost-minimizing firm using two inputs, x and y, will employ inputs so that

Correct AnswerverifiedShow Answer

A change in an input price will alter both production costs and the profit-maximizing output.Thus, a decline in the price of capital will reduce production costs, increase the profit-maximizing output, and thereby increase the demand for labor.This describes the

Correct AnswerverifiedShow Answer

The profit-maximizing and the least-cost combination of inputs are

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The MRP curve for labor

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Harry owns a barbershop and charges $6 per haircut.By hiring one barber at $10 per hour, the shop can provide 24 haircuts per eight-hour day.By hiring a second barber at the same wage rate, the shop can now provide a total of 42 haircuts per day.Harry should

Correct AnswerverifiedShow Answer

To maximize profits, a competitive firm will maximize the difference between MRP and the wage rate for the laborers it hires.

Correct AnswerverifiedShow Answer

If labor costs are 60 percent of production costs, then a 15 percent increase in wage rates would increase production costs by

Correct AnswerverifiedShow Answer

A business is employing inputs such that the marginal product of labor is 40 and the marginal product of capital is 90.The price of labor is $20, and the price of capital is $30.If the business wants to minimize costs while keeping output constant, then it should

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The marginal product of labor and the marginal revenue product of labor are both measured in the same units, that is, units of output.

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