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59) The above igure shows a nation's production function. Point C is ________ and ________
because ________.
A) attainable; ineicient; the nation is using resources ineiciently
B) attainable; eicient; the nation is using resources eiciently
C) unattainable; ineicient; the nation is using resources ineiciently
D) unattainable; ineicient; the nation is using resources eiciently but they could be more
eicient
E) unattainable; eicient; the nation would be using resources eiciently if they could
attain this level of production
Skill: Level 3: Using models
Section: Checkpoint 8.1
Status: New
AACSB: Analytical thinking
21
60) The above igure that most accurately shows a production function is
A) Figure A.
B) Figure B.
C) Figure C.
D) Figure D.
E) Both Figure A and Figure B; Figure A for an economy with an excess of labor and Figure
B for an economy with a shortage of labor.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Status: Old
AACSB: Analytical thinking
22
61) Based on the production function in the above igure, which of the following is an
attainable combination of labor and real GDP?
i. 300 billion hours of labor and real GDP of $20 trillion
ii. 300 billion hours of labor and real GDP of $8 trillion
iii. 100 billion hours of labor and real GDP of $12 trillion
A) i only
B) ii only
C) iii only
D) ii and iii
E) i and ii
Skill: Level 3: Using models
Section: Checkpoint 8.1
Status: Old
AACSB: Analytical thinking
62) Suppose that the Australian economy initially uses 50 billion hours of labor to produce
$5 trillion of real GDP. If 50 billion more hours are employed and Australia's real GDP
increases by $4 trillion more,
A) Australia's production function exhibits diminishing returns.
B) Australia's production function exhibits increasing returns.
C) Australia has an Okun Wedge of $1 trillion.
D) Australia has positive Lucas Wedge.
E) Australia's production possibility frontier has a positive slope.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Status: Old
AACSB: Analytical thinking
23
63) The real wage rate is the ________ divided by the ________.
A) quantity of labor demanded; quantity of labor supplied
B) nominal wage rate; price level
C) quantity of labor supplied; quantity of labor demanded
D) nominal wage rate; inlation rate
E) equilibrium quantity of employment; potential GDP
Skill: Level 1: Deinition
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
64) Suppose the price of a product is $4 and the nominal wage that the irm must pay is
$20. Then the irm's real wage is
A) $20.
B) $80.
C) $5.
D) $0.20.
E) $4.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.1
Status: Old
AACSB: Analytical thinking
65) The beneit to the irm of hiring another worker is
A) the nominal wage.
B) the price level.
C) the real wage.
D) the extra output produced by the worker.
E) measured as the height of the production function.
Skill: Level 1: Deinition
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
24
66) The quantity of labor demanded is the labor hours all
A) irms plan to hire at a given real wage rate.
B) irms plan to hire at a given nominal wage rate.
C) employees plan to work at a given real wage rate.
D) employees plan to work at a given nominal wage rate.
E) Both answers A and C are correct.
Skill: Level 1: Deinition
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
67) The total labor hours that all the irms in the economy plan to hire during a given time
period at one particular real wage rate is the
A) demand for labor.
B) quantity of labor demanded.
C) supply of labor.
D) quantity of labor supplied.
E) quantity of jobs supplied.
Skill: Level 1: Deinition
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
68) If the real wage rate decreases from $14.00 per hour to $13.00 per hour, the
A) quantity demanded of labor increases.
B) demand for labor increases.
C) quantity supplied of labor increases.
D) supply of labor increases.
E) equilibrium quantity of employment must decrease.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
25
69) When all other inluences on irms' hiring plans remain the same, the
A) lower the real wage rate, the greater is the quantity of labor supplied
B) higher the real wage rate, the greater is the quantity of labor demanded.
C) lower the real wage rate, the smaller is the quantity of labor demanded.
D) lower the real wage rate, the greater is the quantity of labor demanded.
E) None of the above answers is correct because irms' hiring decisions depend on how
proitable hiring a worker is, which depends on how much added proit the worker can
create.
Skill: Level 1: Deinition
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
70) The lower the real wage rate, the
A) fewer workers irms can proitably hire.
B) more workers irms can proitably hire.
C) more workers will supply labor.
D) higher the nominal wage rate.
E) larger the quantity of labor supplied.
Skill: Level 1: Deinition
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
71) The demand for labor relects the point that the
A) lower the real wage rate, the greater the quantity of labor demanded.
B) higher the real wage rate, the greater the quantity of labor demanded.
C) real wage rate does not afect the quantity demanded of labor.
D) nominal wage rate and not the real wage rate determines the quantity of labor
demanded.
E) demand for labor depends on the supply of labor.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
26
72) An increase in the real wage rate ________ the quantity of labor demanded and ________
the quantity of labor supplied.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) does not change; does not change
Skill: Level 1: Deinition
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
73) The demand for labor curve is
A) a vertical line because irms have to hire labor.
B) upward sloping, showing that as the real wage rate increases, more workers are hired.
C) a horizontal line because we assume that the real wage rate is ixed.
D) downward sloping, showing that the quantity of labor demanded increases when the
real wage falls.
E) U-shaped.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
74) A irm's demand for labor depends on the
A) nominal wage rate because it pays workers in dollars.
B) real wage rate, which equals the nominal wage divided by the price level.
C) real wage rate, which equals the nominal wage divided by the hours worked.
D) nominal wage rate, which equals the real wage divided by the price level.
E) supply of labor.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
27
75) The quantity of labor demanded by a irm depends upon
A) the nominal wage rate not the real wage rate.
B) the real wage rate not the nominal wage rate.
C) both the real wage rate and the nominal wage rate.
D) neither the real wage rate nor the nominal wage rate.
E) either the real wage rate or the nominal wage rate, depending whether the price level is
increasing or decreasing.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
76) A irm hires labor up to the point where the
A) real wage rate equals the nominal wage rate.
B) additional hour of labor produces extra output that equals the real wage rate.
C) additional hour of labor produces extra output that equals the nominal wage rate.
D) irm can sell the extra output.
E) real wage rate exceeds the nominal wage rate.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
77) Firms hire more labor as long as
A) the real wage rate is less than the additional output the labor produces.
B) the real wage rate is greater than the additional output the labor produces.
C) extra labor will produce more output.
D) the nominal wage rate exceeds the real wage rate.
E) the nominal wage rate is less than the real wage rate.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
28
78) As long as an additional worker hired by a irm produces
A) more output than the real wage rate, the irm will hire that worker.
B) more output than the real wage rate, the irm will not hire that worker.
C) less output than the real wage rate, the irm will hire that worker.
D) some output, the irm will hire that worker.
E) more output than the nominal wage rate, the irm will hire that worker.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
79) Hershey Chocolate Factory pays a money wage rate equal to $30 per hour and sells its
candy bars for $1.50 each. Hershey Chocolate Factory should hire labor until an additional
unit of labor produces ________ candy bars an hour.
A) 45
B) 1.5
C) 20
D) 30
E) 10
Skill: Level 3: Using models
Section: Checkpoint 8.1
Status: Old
AACSB: Analytical thinking
80) The Bubby Gum factory produces bubble gum. Joanne is one of the employees, and she
produces 10 packs of bubble gum per hour. Joanne's money wage rate is $12 per hour.
Based on this information, the Bubby Gum company should
A) keep Joanne because she creates a proit for the irm.
B) ire Joanne because she creates a loss for the irm.
C) decrease Joanne's wage rate because she is paid too much.
D) increase its demand for labor.
E) None of the above answers is correct because more information about Joanne's real
wage is needed to decide what to do.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Status: Old
AACSB: Analytical thinking
29
81) The Bubby Gum factory produces bubble gum. Joanne is one of the employees, and she
produces 10 packs of bubble gum per hour. Joanne's money wage rate is $12 per hour. If a
packet of bubble gum sells for $1.00, then
A) Joanne is creating a $2.00 per hour loss for the irm.
B) Joanne is creating a $2.00 per hour proit for the irm.
C) the Bubby Gum company should decrease the price of the bubble gum so it sells more
and makes a larger proit.
D) the Bubby Gum company should pay Joanne more.
E) None of the above answers is correct because more information about Joanne's real
wage is needed to decide what to do.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
82) The Bubby Gum factory produces bubble gum. Joanne is one of the employees, and she
produces 10 packs of bubble gum per hour. Joanne's money wage rate is $12 per hour. If a
packet of bubble gum sells for $1.00, then Joanne ________ because ________.
A) is creating a $2.00 per hour loss for the irm; her real wage rate is more than her output
per hour
B) is creating a $2.00 per hour proit for the irm; her real wage rate is more than her
output per hour
C) should recommend that the Bubby Gum company should decrease the price of the
bubble gum ; it would sell more and bring a larger proit
D) should ask for a raise in pay; then her real wage would be less than her output per hour
E) is the last person the Bubby Gump company will employ; an additional hire would
produce equal the amount of additional labor to real wage per hour
Skill: Level 3: Using models
Section: Checkpoint 8.1
Status: New
AACSB: Relective thinking
83) To maximize proits, irms hire labor as long as
A) each additional hour hired produces more additional output than the real wage rate.
B) the total hours hired produces more additional output than the real wage rate.
C) each additional hour hired produces more additional output than the nominal wage rate.
D) the quantity of labor supplied increases as the real wage rate increases.
E) workers continue to supply labor to the irm.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
30
