Survey of Economics, 6e (O’Sullivan/Sheffrin/Perez)
Chapter 10 The Labor Market and the Distribution of Income
10.1 The Demand for Labor
1) Labor costs account for approximately ________ of total production costs.
A) three-fourths
B) half
C) one-fourth
D) one-third
2) The demand for labor is
A) derived from the demand for the products it is used to produce.
B) determined by the demand for consumer products.
C) determined by the price of consumer products.
D) all of the above
3) The demand for labor is called a “derived demand” because it is
A) derived from the demand for the products it is used to produce.
B) affected by the demand for consumer products workers produce.
C) affected by the price of consumer products workers produce.
D) all of the above
4) The marginal product of labor is the
A) change in labor necessary to produce an additional unit of output.
B) cost of additional labor necessary to produce an additional unit of output.
C) change in output resulting from adding an additional unit of labor.
D) change in revenue resulting from adding an additional unit of labor.
5) Other things being equal, as diminishing marginal returns begin to occur, the marginal
revenue product of labor
A) decreases as more workers are used.
B) increases as more workers are used.
C) remains unchanged as more workers are used.
D) none of the above
6) The marginal revenue product of labor is the
A) change in labor necessary to produce an additional unit of output.
B) cost of additional labor necessary to produce an additional unit of output.
C) change in output resulting from adding an additional unit of labor.
D) change in revenue resulting from adding an additional unit of labor.
7) A curve that shows the relationship between the wage and the quantity of labor demanded in
the short-run is
A) the marginal revenue product of labor curve.
B) the marginal revenue curve.
C) the marginal product of labor curve.
D) none of the above
8) When a firm hires a worker for one hour, the marginal benefit to that firm equals the
A) dollar value of the goods produced by that worker in one hour.
B) hourly wage of that worker.
C) number of items the worker produces in that hour.
D) price of each item that the worker produces in that hour.
9) When a firm hires a worker for one hour, the marginal cost to that firm equals the
A) hourly wage of that worker.
B) diminishing marginal productivity of that worker.
C) price of each item that the worker produces in that hour.
D) average total cost of production at the quantity produced.
10) Applied to perfectly competitive labor markets, the marginal principle tells firms to hire
workers until
A) marginal revenue product of the last worker hired equals the wage.
B) marginal productivity begins to diminish.
C) average total costs are minimized.
D) the price of the product equals the wage of the worker.
11) In a perfectly competitive labor market, the firm ________ the price of its product and
________ the wage it pays its workers.
A) takes from the market; takes from the market
B) can freely set; takes from the market
C) takes from the market; can freely set
D) can freely set; can freely set
12) In the short run, the marginal-revenue product curve is ________ because of ________.
A) downward sloping; diminishing returns
B) upward sloping; increasing returns
C) downward sloping; increasing returns
D) upward sloping; diminishing returns
13) If the price of output increases, the marginal revenue product curve will shift ________ and
the profit maximizing quantity of labor demanded will ________.
A) up; increase
B) up; decrease
C) down; increase
D) down; decrease
14) If labor productivity increases, the marginal revenue product curve will shift ________ and
the profit maximizing quantity of labor demanded will ________.
A) up; increase
B) up; decrease
C) down; increase
D) down; decrease
15) Refer to Table 10.1. The marginal product of the third unit of labor is
A) 30.
B) 50.
C) 60.
D) 160.
16) Refer to Table 10.1. The marginal product of the fourth unit of labor is
A) 40.
B) 50.
C) 52.5.
D) 210.
17) Refer to Table 10.1. The marginal product of the fifth unit of labor is
A) 8.
B) 40.
C) 50.
D) 250.
18) Refer to Table 10.1. If the price of output is $10 per unit, the marginal revenue product of the
third unit of labor is
A) $50.
B) $60.
C) $500.
D) $600.
19) Refer to Table 10.1. If the price of output is $2 per unit, the marginal revenue product of the
fourth unit of labor is
A) $50.
B) $52.50.
C) $100.
D) $105.
20) Refer to Table 10.1. If the price of output is $2 per unit, the marginal revenue product of the
eighth unit of labor is
A) $10.
B) $20.
C) $310.
D) $620.
21) Refer to Table 10.1. If the price of output is $2 per unit and the wage rate is $60, ________
workers should be hired.
A) five
B) six
C) seven
D) eight
22) Refer to Table 10.1. If the price of output is $2 per unit and we observe the firm hiring six
workers, if the firm is maximizing profit, the wage rate must be between ________ and
________.
A) $20; $40
B) $30; $50
C) $40; $60
D) $500; $600
23) Refer to Table 10.1. If the price of output is $2 per unit and we observe the firm hiring four
workers, if the firm is maximizing profit, the wage rate must be between ________ and
________.
A) $40; $50
B) $50; $90
C) $80; $100
D) $320; $500
24) Refer to Table 10.1. Suppose that this year the wage rate is $30 and the price of the good is
$1. If the firm is maximizing profit ________ workers will be hired. Next year the wage rate will
increase to $40, but the price of the good will remain at $1. Then ________ workers will be
hired.
A) 6; 5
B) 6; 6
C) 7; 6
D) 5; 5
Table 10.2
25) Refer to Table 10.2. The marginal product of the third unit of labor is
A) 25.
B) 50.
C) 60.
D) 160.
26) Refer to Table 10.2. The marginal product of the fifth unit of labor is
A) 50.
B) 40.
C) 30.
D) 20.
27) Refer to Table 10.2. The marginal product of the seventh unit of labor is
A) 50.
B) 40.
C) 30.
D) 10.
28) Refer to Table 10.2. If the price of output is $10 per unit, the marginal revenue product of the
third unit of labor is
A) $50.
B) $60.
C) $500.
D) $600.
29) Refer to Table 10.2. If the price of output is $10 per unit, the marginal revenue product of the
sixth unit of labor is
A) $20.
B) $50.
C) $200.
D) $500.
30) Refer to Table 10.2. If the price of output is $2 per unit and the wage rate is $40, how many
workers should be hired?
A) six workers
B) five workers
C) four workers
D) three workers
31) Refer to Table 10.2. If the price of output is $2 per unit and the wage rate is $50, how many
workers should be hired?
A) three workers
B) four workers
C) five workers
D) six workers
32) Refer to Table 10.2. If the price of output is $2 per unit and we observe the firm hiring four
workers, if the firm is maximizing profit, the wage rate must be between ________ and
________.
A) $25; $45
B) $30; $35
C) $45; $60
D) $60; $80
33) Refer to Table 10.2. If the price of output is $1 per unit and we observe the firm hiring four
workers, if the firm is maximizing profit, the wage rate must be between ________ and
________.
A) $35; $40
B) $30; $35
C) $45; $60
D) $80; $90
Figure 10.1
34) Figure 10.1 depicts a firm’s marginal revenue product curve. If the firm maximizes its profit
and the hourly wage is $15, how many hours of labor will the firm demand?
A) smaller than 30 hours
B) between 30 hours and 40 hours
C) between 40 hours and 50 hours
D) greater than 50 hours
35) Figure 10.1 depicts a firm’s marginal revenue product curve. If the firm maximizes its profit
and the hourly wage is $12, how many hours of labor will the firm demand?
A) smaller than 30 hours
B) between 30 hours and 40 hours
C) between 40 hours and 50 hours
D) greater than 50 hours
36) Figure 10.1 depicts a firm’s marginal revenue product curve. If the product price is $2, what
is the marginal product of the 30th hour of labor?
A) 5 units
B) 6 units
C) 7 units
D) 8 units
37) Figure 10.1 depicts a firm’s marginal revenue product curve. If the product price is $4, what
is the marginal product of the 40th hour of labor?
A) 4 units
B) 3.5 units
C) 3 units
D) 2.5 units
38) Figure 10.1 depicts a firm’s marginal revenue product curve. The marginal revenue product
curve is negatively sloped because ________ decreases as the firm uses more labor.
A) the hourly wage
B) the marginal product of labor
C) the product price
D) none of the above
39) Figure 10.1 depicts a firm’s marginal revenue product curve. Why does the marginal revenue
product of labor decrease faster as the firm increases its use of labor by 10 hours?
A) because the marginal product of labor decreases at an increasing rate
B) because the marginal product of labor decreases at a decreasing rate
C) because the marginal product of labor increases at an increasing rate
D) because the marginal product of labor increases at a decreasing rate
40) Figure 10.1 depicts a firm’s marginal revenue product curve. If the product price decreases,
the marginal revenue product curve
A) shifts downward.
B) shifts upward.
C) remains the same.
D) none of the above
41) Figure 10.1 depicts a firm’s marginal revenue product curve. If the product price increases,
the marginal revenue product curve
A) shifts downward.
B) shifts upward.
C) remains the same.
D) none of the above
42) Figure 10.1 depicts a firm’s marginal revenue product curve. If the prevailing hourly wage
increases,
A) the marginal revenue product curve shifts upward.
B) the marginal revenue product curve shifts downward.
C) the marginal revenue product curve does not shift but there is a movement upward along the
curve.
D) the marginal revenue product curve does not shift but there is a movement downward along
the curve.
43) Figure 10.1 depicts a firm’s marginal revenue product curve. If the prevailing hourly wage
decreases,
A) the marginal revenue product curve shifts upward.
B) the marginal revenue product curve shifts downward.
C) the marginal revenue product curve does not shift but there is a movement upward along the
curve.
D) the marginal revenue product curve does not shift but there is a movement downward along
the curve.
Figure 10.2
44) Figure 10.2 depicts a firm’s marginal revenue product curve. If the wage rate is $15, how
many workers does the firm demand?
A) four workers
B) five workers
C) six workers
D) seven workers
45) Figure 10.2 depicts a firm’s marginal revenue product curve. If the output price is $5, what is
the marginal product of the third worker?
A) four units of output
B) five units of output
C) six units of output
D) seven units of output
46) Figure 10.2 depicts a firm’s marginal revenue product curve. If the marginal product of the
second worker is 10 units of output, what is the price of output?
A) $3
B) $4
C) $5
D) $6
47) Figure 10.2 depicts a firm’s marginal revenue product curve. Suppose that we observe the
firm demanding five workers. If the firm is maximizing its profit, the wage rate must be between
________ and ________.
A) $5; $10
B) $10; $15
C) $15; $20
D) $25; $30
48) Figure 10.2 depicts a firm’s marginal revenue product curve. Suppose that we observe the
firm demanding three workers. If the firm is maximizing its profit, the wage rate must be
between ________ and ________.
A) $30; $35
B) $25; $30
C) $20; $25
D) $15; $20
49) If principles of economics sections is three credit hours and an instructor teaches two
sections with 100 students in each and tuition and fees at your school are $100 per credit hour,
then the marginal revenue product for your school from hiring that instructor that semester is
A) $100.
B) $300.
C) $30,000.
D) $60,000.
50) If principles of economics sections is three credit hours and an instructor teaches two
sections with 100 students in each and tuition and fees at your school are $500 per credit hour,
then the marginal revenue product for your school from hiring that instructor that semester is
A) $500.
B) $1500.
C) $150,000.
D) $300,000.
51) The market demand curve for labor is the relationship between the wage and the quantity of
labor that
A) all workers are willing to provide.
B) any given worker is willing to provide.
C) all firms are willing to employ.
D) any given firm is willing to employ.
52) The change in the quantity of labor demanded resulting from a change in the quantity
produced of the product is known as the ________ effect.
A) input-substitution
B) price elasticity
C) output
D) derived demand
53) The change in the quantity of labor demanded resulting from a change in the relative cost of
labor is known as the ________ effect.
A) input-substitution
B) price elasticity
C) output
D) derived demand
54) Which of the following is a long-run impact of an increase in the wage?
A) The quantity demanded of labor increases because there are no diminishing returns.
B) The quantity demanded of labor increases because the marginal revenue product curve shifts
upward due to a higher product price.
C) The quantity demanded of labor decreases because firms face a higher degree of diminishing
returns.
D) The quantity demanded of labor decreases because firms will have an incentive to use more
of other inputs instead of labor.
55) The output effect of an increase in the wage comes about because higher wages
A) increase production costs, and final good prices will rise, reducing the quantity demanded of
the product.
B) increase production costs, and final good prices will rise, increasing the quantity demanded of
the product.
C) make labor less expensive as an input, leading firms to switch to labor as an input.
D) make labor more expensive as an input, leading firms to switch to other inputs.
56) The input-substitution effect of an increase in the wage comes about because higher wages
A) increase production costs, and final good prices will rise, reducing the quantity demanded of
the product.
B) increase production costs, and final good prices will rise, increasing the quantity demanded of
the product.
C) make labor less expensive as an input, leading firms to switch to labor as an input.
D) make labor more expensive as an input, leading firms to switch to other inputs.