16-121
Test Bank: II
Topic:
Elasticity of Resource Demand
259.
In firm X labor costs are 85 percent of production costs, while in firm Y labor costs are
40 percent of production costs. A 20 percent increase in wages would increase
production
costs by
A.
23 percent in firm X and 20 percent in firm Y.
260.
Other things being equal, a labor union will find it harder to obtain a wage increase for
its members the
A. less elastic is the demand for the product labor produces.
261.
A computer manufacturer’s elasticity of demand for labor is not likely to be affected by
the
D.
ease of substituting capital for labor in producing computers.
16-122
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Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 16–04 Discuss the determinants of elasticity of resource demand.
Test Bank: II
Topic:
Elasticity of Resource Demand
262.
A firm is producing with the least-cost combination of resources when the
D.
marginal product of each of the resources is all the same.
263.
The “least-cost combination of resources” to produce a given amount of output means
that the output is produced at the lowest
D.
TR of that output.
264.
Assume that a purely competitive firm uses two resources, labor (L) and capital (C), to
produce a certain product. In which situation would the firm be maximizing
profit?
MRPL
MRPC
PL
PC
A
$100
$200
$300
$400
B
$100
$200
$200
$100
C
$150
$200
$150
$200
D
$300
$400
$300
$200
A.
Case A
265.
A firm operating in purely competitive product and resource markets uses three
resources, A, B, and C, whose prices and productivities at current output levels are given
in
the table.
A
B
C
Price
$10
$10
$2
MRP
20
6
4
To achieve an optimal factor mix for its current output, the firm should employ more
A.
A and B and less C.
16-124
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written consent of McGraw-Hill Education.
Test Bank: II
Topic:
Optimal Combination of Resources
266.
What happens when technological advance makes available a new highly productive
capital good for which MP/P is greater than that of labor for which it is a substitute
resource?
A. Labor will replace the new capital because labor is now cheaper.
267.
The introduction of automatic elevator equipment allowed firms to handle the
movement of people in a multistory building at less cost, thus decreasing the demand for
elevator operators. The best explanation for this change is that the
A.
marginal product of elevator operators was equal to its price.
268.
A firm combines two resources, A and B, to produce an output, Q. Their respective
marginal revenue products are $30 and $21. A costs $15 a unit and B $7 a unit. To
reduce
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the cost of Q,
D.
less of both resources should be used.
269.
The price of capital is $12 per machine-hour, and the price of labor is $3 per hour. The
table gives production schedules for a firm, showing the possible combinations
of capital
and labor that will produce 100 units of output. Which combination will this cost-minimizing
firm choose?
A
Labor: 20
Capital: 5
MPL: 5
MPc: 20
B
Labor: 10
Capital: 10
MPL: 10
MPc: 10
C
Labor: 5
Capital: 20
MPL: 20
MPc: 5
D
Labor: 4
Capital: 25
MPL: 25
MPc: 4
D.
D
270.
A firm is producing 100 pencils per week. The production process requires labor and
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capital as inputs. Labor costs $6 per labor hour, and capital costs $12 per machine
hour.
Currently, the marginal product of labor is 18 pencils and the marginal product of capital is
36 pencils. To minimize the cost of producing this level of output, the
firm should use
A.
more capital and less labor.
271.
Suppose that the production of wheat requires two inputs, labor and fertilizer. The price
of labor is $4.50, and the price of fertilizer is $3.00. A farmer is currently
employing the
inputs such that the marginal product of labor is 11 and the marginal product of fertilizer is 8.
If the farmer is a cost–minimizer, he should
A. use more labor and less fertilizer.
272.
A cost–minimizing firm using two inputs, x and y, will employ inputs so that
A.
MPx = MPy.
16-127
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Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 16–05 Determine how a competitive firm selects its optimal combination
of resources.
Test Bank: II
Topic:
Optimal Combination of Resources
273.
If a firm is hiring inputs under purely competitive conditions, then any level of output
will be produced with the least-cost combination of resources A and B when
A.
MU of A/price of A = MU of B/price of B.
274.
A firm is employing inputs such that the marginal product of labor is 25 and the
marginal product of capital is 40. The price of labor is $5, and the price of capital is $8.
If
the firm wants to minimize costs, then it should
A.
use more labor and less capital.
275.
A purely competitive firm in the factor and product markets sells its output for $1 and
pays factors PL = $4 and PC = $3. What is the profit-maximizing combination of L
and C for the firm?
QL
MPL
QC
MPC
1
28
1
18
2
24
2
15
3
20
3
12
4
16
4
9
5
9
5
6
6
4
6
3
7
2
7
2
8
1
8
1.5
9
0.5
9
1
A.
8 of L and 8 of C
276.
Suppose a competitive firm in both the resource and product markets is using inputs
such that the marginal product of labor is 16 and the price of labor is $4 per unit,
while the
marginal product of capital is 12 and the price of capital is $3 per unit. At the maximum
profit equilibrium point, the price of the product is
A. $3.
16-129
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A c c e s s i b i l i t y :
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Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 16–05 Determine how a competitive firm selects its optimal combination
of resources.
Test Bank: II
Topic:
Optimal Combination of Resources
277.
A firm will be hiring labor and capital in profit-maximizing amounts when
A.
MRP capital/price of capital equals MRP labor/price of labor.
278.
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
A.
use more labor and less capital.
279.
Assume that a purely competitive firm uses two resources, labor (L) and capital (C), to
produce a product. In which situation would the firm be maximizing profit?
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MRPL
MRPC
PL
PC
A
20
40
60
80
B
20
40
20
40
C
30
30
20
20
D
60
80
20
10
A. A
280.
In the marginal productivity theory of income distribution, when all markets are purely
competitive, the payment for each unit of a resource is equal to its
A.
total product.
281.
Those who advocate the marginal productivity theory of income distribution argue that
A.
government policy should be used to redistribute income based on need.
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written consent of McGraw-Hill Education.
goods and services.
D. monopoly and monopsony power do not affect resource payments of the overall
distribution of income.
282.
Critics of the marginal productivity theory of income distribution claim that the theory is
flawed because of
A. the law of diminishing returns.
283.
A major criticism of the marginal productivity theory of income distribution is that
A.
the demand for labor resources is price inelastic.
16-132
284.
A winner-takes-all market, like that for entertainers, exhibits huge differences between
the top talents and the next tier of artists in all of the following aspects, except
D.
media hype.
285.
The introduction of ATMs in the banking industry illustrates that ATMs
D.
are much better complements for labor, causing banks to reduce the number of their
branch locations.
286.
Before ATMs, the average bank branch employed 20 employees; after ATMs, the
average branch employed 13 employees, but banks have opened more branches. These
developments suggest that
A. ATMs are purely substitutes for labor in banking.
16-133
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Blooms: Remember
D i f f i c u l t y:
01 Easy
Learning Objective: 16–03 List the factors that increase or decrease resource demand.
Test Bank: II
Topic:
Determinants of Resource Demand
True / False Questions
287.
The prices of resources are an important factor in the determination of money income.
288.
Resource prices are important because they affect resource allocation and income
distribution.
289.
The demand for a resource is a derived demand based on the demand for the product it
helps to produce.
16-134
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written consent of McGraw-Hill Education.
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
290.
The demand for computers is derived from the demand for the capital resources that are
used to produce computers.
291.
The marginal revenue product of labor is measured in dollars per unit of labor.
292.
The marginal product of labor and the marginal revenue product of labor are both
measured in the same units, that is, units of output.
16-135
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written consent of McGraw-Hill Education.
Test Bank: II
Topic:
Marginal Productivity Theory of Resource Demand
293.
The marginal revenue product of labor and the marginal resource cost of labor are both
measured in the same units, that is, in dollars per unit of labor.
294.
A firm’s demand schedule for a resource is the firm’s marginal product schedule for the
resource.
295.
A competitive firm’s marginal revenue product of labor will fall as it employs more
labor because the price of labor decreases as more of it is employed.
16-136
296.
The marginal revenue product curve for an input is downsloping because of the law of
diminishing returns.
297.
If MRP of labor < wage rate, a firm should hire more workers.
298.
Changes in the price of a product would not shift the demand for the resources needed
to produce the product.
299.
If the demand for a product produced by an input decreases, the demand for the input
will also decrease.
16-137
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written consent of McGraw-Hill Education.
TRUE
300.
Increased resource productivity will, ceteris paribus, increase a firm’s demand for an
input.
301.
The demand for a resource will shift left if the price of a substitute resource decreases.
302.
If the price of labor increases relative to the price of capital, and as a result the quantity
of capital hired increases, the output effect of the price increase is greater than
the
substitution effect.
16-138
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written consent of McGraw-Hill Education.
D i f f i c u l t y:
01 Easy
Learning Objective: 16–03 List the factors that increase or decrease resource demand.
Test Bank: II
Topic:
Determinants of Resource Demand
303.
If two resources are complementary, an increase in the price of one will increase the
demand for the other.
304.
The less the elasticity of product demand, the greater the elasticity of resource demand.
305.
The elasticity of demand for labor varies inversely with the elasticity of demand for the
product it is used to produce.
306.
To maximize profits, a competitive firm will maximize the difference between MRP and
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the wage rate for the laborers it hires.
307.
To achieve profit maximization, a firm must produce the profit-maximizing output with
the least amount of economic resources.
308.
If a firm pays labor $5 and receives an MPL of 10, while paying capital $100 and
receiving an MPC of 100, to lower production costs it should hire more labor and less
capital.
309.
If MPx > MPy, a firm should hire more x and less y.
16-140
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FALSE
310.
The marginal productivity theory of resource demand suggests that those resources
whose productivity levels are high will end up getting a higher share of the economy’s
income.
311.
Income from inherited wealth and property resources provides strong support for the
marginal productivity theory of income distribution.