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C. $47.
D.
$90.
AACSB: Knowledge Application
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 16–05 Determine how a competitive firm selects its optimal combination
of resources.
Test Bank: I
Topic:
Optimal Combination of Resources
125.
Quantity of
Labor
MP of
Labor
MRP of
Labor
Quantity of
Capital
MP of
Capital
MRP of
Capital
1
15
$45
1
8
$24
2
12
36
2
6
18
3
9
27
3
5
15
4
6
18
4
4
12
5
3
9
5
3
9
6
1
3
6
2
6
Refer to the given data. If the prices of labor and capital are $9 and $15, respectively, and
labor and capital are the only inputs, the firm‘s economic profits will be
D. $28.
126.
The profit-maximizing and the least-cost combination of inputs are
A.
the result of unrelated decisions.
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written consent of McGraw-Hill Education.
C.
such that minimizing costs always results in profit maximization.
D.
such that maximizing profits always entails the least-cost combination of inputs.
127.
Suppose a firm hires both labor (L) and capital (C) under purely competitive
conditions. The price of labor is PL, and that of capital is PC. The marginal product of labor
is MPL, and that of capital is MPC. The firm sells its product competitively at a price of PX.
Which of the following must pertain if the firm is to minimize the cost of
producing any
output?
A.
MPC = MPL = PX
128.
Suppose a firm hires both labor (L) and capital (C) under purely competitive
conditions. The price of labor is PL, and that of capital is PC. The marginal product of labor
is MPL, and that of capital is MPC. The firm sells its product competitively at a price of PX.
If MPC / PC > MPL / PL, the firm
A.
may be maximizing profits, but it is not minimizing costs.
16–63
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written consent of McGraw-Hill Education.
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 16–05 Determine how a competitive firm selects its optimal combination
of resources.
Test Bank: I
Top i c :
Optimal Combination of Resources
129.
Suppose a firm hires both labor (L) and capital (C) under purely competitive
conditions. The price of labor is PL, and that of capital is PC. The marginal product of labor
is MPL, and that of capital is MPC. The firm sells its product competitively at a price of PX.
In competitive labor markets, the marginal cost of an additional unit of labor
A.
is equal to PL × MPL.
130.
16–64
Refer to the diagram. If a firm produces output Q1 at a unit cost of c, then the
A.
firm is operating in a purely competitive industry.
131.
Refer to the diagram. If a firm produces output Q1 at a unit cost of b, then the
D.
firm has achieved minimum efficient scale.
132.
Refer to the diagram. The production of Q1 units of output at an average cost of a
C.
would entail X-inefficiency.
D.
can be realized if the last dollar spent on each input were equal to its marginal product.
16–66
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written consent of McGraw-Hill Education.
Top i c :
Optimal Combination of Resources
Type: Graph
133.
The marginal productivity theory of income distribution suggests that
A. government should subsidize the most productive workers through a system of transfer
payments.
134.
“Income receivers should be paid in accordance with the value of output each
produces.” This statement is consistent with the
A. monopoly theory of income distribution.
135.
The fact that monopoly and monopsony exist in resource markets means that
A. the marginal productivity theory of income distribution is valid.
16–67
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written consent of McGraw-Hill Education.
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 16–06 Explain the marginal productivity theory of income distribution.
Test Bank: I
Top i c :
Marginal Productivity Theory of Income Distribution
136.
The marginal productivity theory of income distribution has been criticized because
A. the resulting distribution of income is likely to be too equal to maintain production
incentives.
137.
(Consider This) In the market for superstars,
A. earnings reflect pricing power rather than marginal revenue product.
138.
(Consider This) According to the Consider This box “Superstars,” the high pay of
superstars reflects
A. elastic product demand.
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written consent of McGraw-Hill Education.
D.
warped societal values.
139.
(Last Word) The case of ATMs and bank tellers illustrates that
A. capital is primarily a substitute for labor.
140.
(Last Word) When they were first introduced, ATMs
D.
had no effect on the demand for bank tellers.
141.
(Last Word) The rapid spread of ATMs
A.
dramatically reduced employment of bank tellers, and demand remains low because
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written consent of McGraw-Hill Education.
ATMs serve the same functions as bank tellers.
B.
has resulted in the closure of many bank branches and led to a long-term decline in
employment of bank tellers.
C.
reduced the demand for bank tellers initially, but eventually tellers took on tasks that
ATMs are not suited to handle.
D. has had no discernible impact on the demand for bank tellers.
True / False Questions
142.
The marginal revenue product curve of a purely competitive seller declines solely
because of the law of diminishing returns.
143.
Producers should hire resources until the total output of each is equal.
16–70
144.
It will be profitable for a firm to hire additional units of any resource up to the point at
which its MRP is equal to its MRC.
145.
The more elastic the demand for a product, the less elastic will be the demand for the
resources employed in producing it.
146.
The demand for a resource depends on its productivity and the market value of the
product it is producing.
147.
If two resources are complementary, a decrease in the price of one will reduce the
demand for the other.
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written consent of McGraw-Hill Education.
FALSE
148.
Other things equal, the less competitive the market in which a firm sells its product, the
less elastic will be its resource demand curve.
149.
If the substitution effect outweighs the output effect, an increase in the price of a
substitute resource will increase the demand for labor.
150.
The demand for labor is a derived demand, whereas the demand for capital is not.
16–72
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written consent of McGraw-Hill Education.
Learning Objective: 16–02 Convey how the marginal revenue productivity of a resource
relates to a firms demand for that resource.
Test Bank: I
Top i c :
Marginal Productivity Theory of Resource Demand
151.
The MRP of labor curve is the firm’s labor demand curve.
152.
Marginal revenue product (MRP) is the change in total product (total output) associated
with hiring an additional unit of labor.
153.
A firm should reduce its employment of a resource whose marginal resource cost
exceeds its marginal revenue product.
16–73
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written consent of McGraw-Hill Education.
Top i c :
Marginal Productivity Theory of Resource Demand
154.
Elasticity of resource demand is measured by dividing “percentage change in resource
price” by “percentage change in resource quantity.”
155.
An increase in the price of capital will reduce the demand for labor if capital and labor
are complementary resources.
156.
The marginal productivity theory of income distribution holds that all resources are paid
according to their marginal contribution to society’s output.
157.
Hiring the least-costly combination of resources ensures that profits will be maximized.
16–74
158.
Hiring the profit-maximizing combination of resources ensures that production costs
will be minimized.
Multiple Choice Questions
159.
All firms have to incur costs because of
D.
revenues they receive.
160.
Which of the following is equivalent to the costs that firms incur in acquiring economic
resources?
A. revenues from the product
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written consent of McGraw-Hill Education.
B.
income of the resources
C.
money flowing from the resources
D.
profits from the resources employed
161.
To firms, resource prices are a major part of
162.
Holding revenues constant, cost minimization by firms is equivalent to
A.
sales maximization.
163.
A firm that hires labor in a purely competitive resource market is a
A.
“price maker.“
164.
The strength of the demand for a resource depends on the following factors, except the
D.
demand for the product the resource helps to produce.
165.
The demand for a productive resource is said to be “derived” because the demand for
the factor
D.
is derived from government policy.
16–77
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written consent of McGraw-Hill Education.
Test Bank: II
Topic:
Marginal Productivity Theory of Resource Demand
166.
The demand for capital by a firm is based on the demand for the product that the capital
produces. This relationship is referred to as
A. product demand.
167.
An increase in the demand for HDTV sets leads to an increase in demand for LCD and
LED TV screens. This situation arises because
168.
An example of derived demand in the auto industry is the demand for
A.
new automobiles.
16–78
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written consent of McGraw-Hill Education.
AACSB: Knowledge Application
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 16–02 Convey how the marginal revenue productivity of a resource
relates to a firms demand for that resource.
Test Bank: II
Topic:
Marginal Productivity Theory of Resource Demand
169.
The marginal revenue product of labor refers to the
A.
additional output produced by adding one more unit of labor.
D. number of units of output produced by a given number of units of labor.
170.
The marginal product of labor is expressed in , while the marginal revenue product of
labor is expressed in .
D.
dollars per unit of labor; dollars per unit of labor also
171.
The marginal revenue product of an input in a competitive market decreases as a firm
increases the quantity of the input employed because of the
16–79
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written consent of McGraw-Hill Education.
A.
law of diminishing returns.
B.
law of diminishing marginal utility.
C.
homogeneity of the product.
D.
free mobility of resources.
172.
Marginal resource cost is
D.
determined by the marginal physical product schedule for an input.
173.
Refer to the graph, where TP = total product and L = labor input. The marginal product of
labor (MP)
A.
is constant at all levels of L.