The Markets for the Factors of Production 4559
189. Refer to Scenario 18-2. If the price of fresh Pacific salmon were to decrease significantly, it is
most likely that Gertrude would
a. reduce her demand for crew members.
b. hire more boats.
c. become a seller in at least one factor market.
d. hire more crew members.
190. Refer to Scenario 18-2. If the price of fresh Pacific salmon were to increase significantly, it is
most likely that Gertrude would
a. reduce her demand for crew members.
b. sell some of her boats.
c. become a seller in at least one factor market.
d. hire more crew members.
4560 The Markets for the Factors of Production
191. Refer to Scenario 18-2. If Gertrude is a competitor in both the fresh Pacific salmon market
and in the market for crew members, she is called a price
a. taker in the salmon market and a wage setter in the crew market.
b. taker in the crew market and a price setter in the salmon market.
c. taker in both markets.
d. setter in both markets.
192. Refer to Scenario 18-2. In the fresh Pacific salmon product market, Gertrude has some
control over the
a. price she charges for her fresh salmon.
b. quantity of fresh salmon that she supplies to the market.
c. competitive environment of the market.
d. supply of labor in the market.
The Markets for the Factors of Production 4561
193. Refer to Scenario 18-2. If Gertrude is a price taker in the labor market, she can choose
a. the price at which she will sell the fish she catches.
b. how many crew members she will hire.
c. the wages that she will pay to her crew members.
d. All of the above.
194. Refer to Scenario 18-2. Labor-market theory assumes that Gertrude‘s demand for crew
members and her supply of fresh Pacific salmon result from her
a. intrinsic desire to hire crew members.
b. primary goal of maximizing profit.
c. altruistic motives to provide fresh salmon to consumers.
d. desire to strike a balance between environmental concerns and maximum profit.
4562 The Markets for the Factors of Production
195. Which of the following statements is correct?
a. An increase in the supply of other factors, such as capital, will increase the demand for labor.
b. Labor-saving technology will increase the demand for labor.
c. Labor-augmenting technology will decrease the demand for labor.
d. A decrease in the price of output will increase the demand for labor.
196. Harold owns a cranberry bog in which he grows cranberries. Harold’s farm is a competitive,
profit-maximizing firm. As such, Harold much decide
(i) how many cranberries to sell.
(ii) what price to charge for his cranberries.
(iii) what wages to pay his workers.
(iv) how many workers to hire.
a. (i) only
b. (ii) and (iii) only
c. (i) and (iv) only
d. (i), (ii), (iii), and (iv)
The Markets for the Factors of Production 4563
197. If the selling price of a bushel of cranberries rises, we would expect the demand for labor in the
cranberry industry to
a. increase.
b. decrease.
c. be unchanged.
d. increase by less than the corresponding decrease in supply.
198. Which of the following would decrease the demand for labor?
(i) a decrease in the output price
(ii) an increase in the output price
(iii) a labor-saving technological advance
(iv) a labor-augmenting technological advance
a. (i) only
b. (i) and (iii) only
c. (ii) only
d. (ii) and (iv) only
4564 The Markets for the Factors of Production
199. Which of the following would increase the demand for labor?
(i) a decrease in the output price
(ii) an increase in the output price
(iii) a labor-saving technological advance
(iv) a labor-augmenting technological advance
a. (i) only
b. (i) and (iii) only
c. (ii) only
d. (ii) and (iv) only
200. Which of the following best illustrates the concept of “derived demand?”
a. An increase in the wages of auto workers will lead to an increase in the demand for robots in
automobile factories.
b. An automobile producer‘s decision to supply more cars will lead to an increase in the demand
for automobile production workers.
c. An automobile producer’s decision to supply more minivans results from a decrease in the
demand for station wagons.
d. An increase in the price of gasoline will lead to an increase in the demand for small cars.
201. When a competitive firm maximizes profit, it will hire workers up to the point where the
a. marginal product of labor is equal to the product price.
b. marginal product of labor is equal to the wage.
c. value of the marginal product of labor is equal to the product price.
d. value of the marginal product of labor is equal to the wage.
202. For a competitive, profit-maximizing firm, the labor demand curve is the same as the
a. marginal cost curve.
b. value of marginal product curve.
c. production function.
d. profit function.
4566 The Markets for the Factors of Production
203. Which of the following is true at the level of output at which a competitive firm maximizes
profit?
a. price = marginal cost
b. price = wage/value of marginal product of labor
c. price = marginal product of labor/wage
d. All of the above are correct.
204. What causes the labor demand curve to shift?
(i) changes in productivity
(ii) changes in wages
(iii) changes in output prices
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. All of the above are correct.
The Markets for the Factors of Production 4567
205. If the price of Verizon cell phones falls, what will happen to the demand curve for Verizon sales
people?
a. It will shift to the right.
b. It will shift to the left.
c. The direction of the shift is ambiguous.
d. It will remain unchanged.
206. If the demand curve for wedding cakes shifts to the right, then the value of the marginal product
of labor for bakers will
a. rise.
b. fall.
c. remain unchanged.
d. rise or fall; either is possible.
4568 The Markets for the Factors of Production
207. If the demand curve for economics textbooks shifts to the left, then the value of the marginal
product of labor for economics textbook authors will
a. rise.
b. fall.
c. remain unchanged.
d. rise or fall; either is possible.
208. Competitive firms decide how much output to sell by producing output until the price of the good
equals
a. marginal product.
b. the value of marginal product.
c. marginal cost.
d. marginal profit.
The Markets for the Factors of Production 4569
209. Competitive firms hire workers until the additional benefit they receive from the last worker hired
is equal to
(i) the additional cost of that worker.
(ii) the wage paid to that worker.
(iii) the marginal product of that worker.
a. (i) only
b. (iii) only
c. (i) and (ii) only
d. (ii) and (iii) only
210. Dan owns one of the many bakeries in New York City. Which of the following events will lead
to an increase in Dan’s demand for the services of bakers?
(i) The price of muffins increases. (Muffins are Dan’s specialty.)
(ii) Dan adds three new ovens to the kitchen area to help the bakers work faster.
(iii) Local bakers form a union to protect themselves from low wages.
a. (i) and (ii) only
b. (ii) and (iii) only
c. (i) and (iii) only
d. (i), (ii), and (iii)
4570 The Markets for the Factors of Production
211. John owns a number of hot dog stands in New York City. He hires workers to sell hot dogs at
his stands. Which of the following events will lead to a decrease in John’s demand for hot dog
vendors?
a. Hollywood glamorization of a new movie about a hot dog vendor leads hundreds of high–
school students in New York City to apply for a job at John’s.
b. The price of hot dogs falls.
c. The local hot dog vendors form a union increasing hot dog vendor wages.
d. The demand curve for hot dogs shifts to the right.
212. A pretzel-stand owner in Chicago hires workers to make hot pretzels and sell them to customers.
If the firm is competitive in both the market for pretzels and in the market for pretzel-makers,
then it has
a. some control over both the price of pretzels and the wage it pays to its workers.
b. no control over the price of pretzels but some control over the wage it pays to its workers.
c. some control over the price of pretzels but no control over the wage it pays to its workers.
d. no control over either the price of pretzels or the wage it pays to its workers.
The Markets for the Factors of Production 4571
213. Which of the following events could increase the demand for labor?
a. A decrease in output price
b. A decrease in the amount of capital available for workers to use
c. An increase in the marginal productivity of workers
d. A decrease in the wage paid to workers
214. Which of the following events could decrease the demand for labor?
a. An increase in the number of migrant workers
b. An increase in the marginal productivity of workers
c. A decrease in demand for the final product produced by labor
d. A decrease in the supply of labor
4572 The Markets for the Factors of Production
215. When we focus on the firm as a supplier of a good or a service, we assume that the firm is a
profit maximizer. When we focus on the firm as a demander of labor, we assume that the firm‘s
objective is to
a. minimize wages.
b. minimize variable costs.
c. maximize the number of workers hired.
d. maximize profit.
216. Suppose that a new invention increases the marginal productivity of labor, shifting labor demand
to the right. Such an invention would be an example of
a. labor-saving technology.
b. labor-augmenting technology.
c. revenue technology.
d. supply-shifting technology.
The Markets for the Factors of Production 4573
217. Suppose that a new invention decreases the marginal productivity of labor, shifting labor demand
to the left. Such an invention would be an example of
a. labor-saving technology.
b. labor-augmenting technology.
c. revenue technology.
d. supply–shifting technology.
218. Labor-saving technology causes which of the following?
(i) The marginal productivity of labor increases.
(ii) The marginal productivity of labor decreases.
(iii) Labor demand shifts to the right.
(iv) Labor demand shifts to the left.
a. (i) only
b. (ii) only
c. (i) and (iii) only
d. (ii) and (iv) only
4574 The Markets for the Factors of Production
219. Labor-augmenting technology causes which of the following?
(i) The marginal productivity of labor increases.
(ii) The marginal productivity of labor decreases.
(iii) Labor demand shifts to the right.
(iv) Labor demand shifts to the left.
a. (i) only
b. (ii) only
c. (i) and (iii) only
d. (ii) and (iv) only
220. For a competitive, profit-maximizing firm, the demand curve for labor will shift in response to a
change in the
a. wage rate.
b. quantity of labor demanded.
c. price of the product that the firm sells.
d. an increase in the supply of labor.
The Markets for the Factors of Production 4575
221. Suppose a labor-augmenting technology were developed for a product that increased the
marginal product of labor for all workers. Which of the following would happen in the labor
market for this product?
a. Demand would decrease.
b. Demand would increase.
c. Supply would decrease.
d. Supply would increase.
Figure 18-5
The figure shows a particular profit-maximizing, competitive firm’s value-of-marginal-product
(VMP) curve. On the horizontal axis, L represents the number of workers. The time frame is
daily.
4576 The Markets for the Factors of Production
222. Refer to Figure 18-5. The value-of–marginal-product curve that is drawn could be relabeled as
the firm’s
a. production function.
b. total revenue curve.
c. labor supply curve.
d. labor demand curve.
223. Refer to Figure 18-5. The firm would choose to hire three workers if
a. the market wage for a day’s work is $220.
b. the market wage for a day’s work is $260.
c. the output price is $220.
d. the output price is $260.
The Markets for the Factors of Production 4577
224. Refer to Figure 18-5. Suppose the marginal product of the fifth unit of labor is 30 units of
output per day. The figure implies that the
a. price of output is $4.
b. price of output is $6.
c. price of output is $8.
d. daily wage is $120.
225. Refer to Figure 18-5. Suppose one point on the firm’s production function is (L = 3, Q = 180),
where L = number of workers and Q = quantity of output. If the firm sells its output for $5 per
unit, then
a. a second point on the firm’s production function is (L = 4, Q = 216).
b. the firm’s production function exhibits the property of diminishing marginal product of labor.
c. the firm will maximize profit by hiring four workers if it pays workers $160 per day.
d. All of the above are correct.
4578 The Markets for the Factors of Production
226. Refer to Figure 18–5. Assume that two points on the firm’s production function are (L = 2, Q =
180) and (L = 3, Q = 228), where L = number of workers and Q = quantity of output. The firm
pays its workers $120 per day. The firm’s non-labor costs are fixed, and they amount to $250
per day. We can conclude that
a. the firm sells its output for $12 per unit.
b. if the firm is currently employing 2 workers per day, then profit could be increased by $48 per
day if a third worker is hired.
c. the marginal cost per unit of output is $2.50 when output is increased from 180 units per day
to 228 units per day.
d. the firm’s maximum profit occurs when it hires 3 workers per day.
Multiple Choice – Section 02: The Supply of Labor
1. The labor supply curve is fundamentally a representation of the trade-off people face between
which of the following?
a. work and wages
b. work and leisure
c. wages and productivity
d. technology and wages