The Markets for the Factors of Production 4479
28. Juanita is trying to convince the owner of a jewelry store to hire her. She argues that she could
help the shop sell an additional three rings per day for a profit of $20 each. If the facts are not in
dispute, but the owner does not hire her, then
a. the wage rate must be less than $60 per day.
b. hiring Juanita would involve a negative marginal product.
c. the wage rate must be more than $60 per day.
d. the wage rate must be less than $20 per day.
29. Which of the following statements is correct?
a. The value of the marginal product curve is the labor demand curve for competitive, profit-
maximizing firms.
b. A competitive, profit-maximizing firm hires workers up to the point where the value of the
marginal product of labor equals the wage.
c. By hiring labor up to the point where the value of the marginal product of labor equals the
wage, the firm is producing where price equals marginal cost.
d. All of the above are correct.
4480 The Markets for the Factors of Production
30. Tony is the owner of Tony’s Taqueria. Tony is a profit-maximizing owner whose firm operates in
a competitive market. An additional worker costs Tony $200 and has a marginal productivity of
40 tacos. Assuming no other variable costs, what is the marginal cost of a taco?
a. $200
b. $8
c. $5
d. There is insufficient information available to answer this question.
31. Sally runs a hair styling salon. Sally is a profit-maximizing owner whose firm operates in a
competitive market. The marginal cost of a haircut is $15. What is the maximum wage that Sally
will pay her stylists?
a. less than $15 per haircut
b. $15 per haircut
c. more than $15 haircut
d. There is insufficient information to answer this question.
The Markets for the Factors of Production 4481
32. Diane’s Auto World installs tires on automobiles, light trucks, and sport utility vehicles. She is a
profit-maximizing business owner whose firm operates in a competitive market. The marginal cost
of installing a tire is $20. The marginal productivity of the last worker that Diane hired was 2 tires
per hour. What is the maximum hourly wage that Diane was willing to pay the last worker hired?
a. $10
b. $20
c. $40
d. There is insufficient information to answer this question.
33. Linda’s Autoplex performs oil changes on automobiles, light trucks, and sport utility vehicles. She
is a profit- maximizing business owner whose firm operates in a competitive market. The marginal
cost of an oil change is $10. The marginal productivity of the last worker that Linda hired was 1.5
oil changes per hour. What is the maximum hourly wage that Linda was willing to pay the last
worker hired?
a. $10
b. $15
c. $20
d. $30
4482 The Markets for the Factors of Production
34. For a profit-maximizing, competitive firm, the value of the marginal product of labor
a. increases when the price of output decreases.
b. is the firm’s demand for labor.
c. equals the marginal product of labor divided by the wage rate.
d. All of the above are correct.
35. Suppose that eight workers can manufacture 70 radios per day and that nine workers can
manufacture 90 radios per day. If radios can be sold for $20 each, the value of marginal product
of the ninth worker is
a. 20 radios.
b. 90 radios.
c. $200.
d. $400.
The Markets for the Factors of Production 4483
36. Value of marginal product is defined as the additional
a. output a firm would receive after hiring one more factor of production.
b. cost of hiring one more factor of production.
c. revenue earned from selling one more unit of product.
d. revenue earned from hiring one more factor of production.
37. When deciding whether to hire an additional worker, firms need only consider how the additional
worker would affect
a. costs.
b. revenues.
c. output.
d. profit.
4484 The Markets for the Factors of Production
38. The value of the marginal product of any input is equal to the marginal product of that input
multiplied by the
a. wage.
b. marginal cost of the output.
c. change in total profit.
d. market price of the output.
39. The value of the marginal product of labor is equal to the change in
a. marginal cost caused by the addition of the last worker.
b. total cost caused by the addition of the last worker.
c. total revenue caused by the addition of the last worker.
d. total profit caused by the addition of the last worker.
The Markets for the Factors of Production 4485
40. When a firm experiences diminishing marginal product, what is the shape of the curve that
represents the value of the marginal product of labor?
a. U-shaped
b. vertical
c. downward sloping
d. upward sloping
41. To maximize profit, a competitive firm hires workers up to the point of intersection of the
a. marginal product curve and the wage line.
b. value of marginal product curve and the wage line.
c. value of marginal product curve and the marginal revenue curve.
d. total revenue curve and the wage line.
4486 The Markets for the Factors of Production
42. The negative slope of the value of marginal product curve is most easily explained by
a. tight labor markets.
b. a surplus of workers.
c. diminishing marginal product.
d. diminishing marginal cost.
43. If the value of the marginal product of labor exceeds the wage, then hiring another worker
increases the firm’s
a. profit.
b. total cost.
c. total revenue.
d. All of the above are correct.
The Markets for the Factors of Production 4487
44. If the value of the marginal product of labor exceeds the wage, then the firm could
a. increase profit by hiring additional labor.
b. increase profit by reducing the amount of labor hired.
c. increase revenue by lowering output.
d. reduce total cost by hiring additional workers.
45. If the value of the marginal product of labor is less than the wage, then the firm could
a. increase profit by hiring additional labor.
b. increase profit by reducing the amount of labor hired.
c. increase revenue by lowering output.
d. reduce total cost by hiring additional workers.
46. If the wage exceeds the value of the marginal product of labor, then hiring another worker
a. decreases the firm’s total revenue.
b. increases the firm’s profit.
c. decreases the firm’s total cost.
d. decreases the firm’s profit.
4488 The Markets for the Factors of Production
47. A worker’s contribution to a firm’s revenue is measured directly by the worker’s
a. marginal product.
b. value of marginal product.
c. marginal product multiplied by the worker’s wage.
d. value of marginal product multiplied by the output price.
48. We observe a profit-maximizing firm hiring its 75th employee. It is possible to infer that, when 74
employees are hired, the
a. wage exceeds the value of the marginal product of labor.
b. value of the marginal product of labor exceeds the wage.
c. marginal product of labor is increasing.
d. firm is attempting to increase its market share.
The Markets for the Factors of Production 4489
49. A profit-maximizing, competitive firm will always hire an additional worker when the additional
worker makes a positive contribution to
a. total revenue.
b. total profit.
c. the value of the marginal product of labor.
d. marginal revenue.
50. Suppose that in November a profit-maximizing firm has 100 employees. By December, the firm
has decreased employment. One can infer that, when 100 employees are hired, the
a. firm is losing market share.
b. firm is minimizing losses.
c. wage exceeds the value of the marginal product of labor.
d. value of the marginal product of labor exceeds the wage.
4490 The Markets for the Factors of Production
51. A competitive firm will hire workers up to the point at which the value of the marginal product of
labor equals the
a. average total cost.
b. average variable cost.
c. wage.
d. price per unit of output.
52. Competitive firms that maximize profits will hire workers until the value of the marginal product
of labor
a. equals the wage.
b. equals the price of the final good.
c. begins to fall.
d. begins to rise.
The Markets for the Factors of Production 4491
53. For a profit–maximizing competitive firm, the value of marginal product curve is
a. always rising.
b. falling only when marginal product is rising.
c. the labor supply curve.
d. the labor demand curve.
54. For a competitive firm experiencing diminishing marginal productivity, the value of the marginal
product
(i) increases when the price of output decreases.
(ii) changes when marginal product changes.
(iii) diminishes as the number of workers rises.
a. (i) and (ii)
b. (i) and (iii)
c. (ii) and (iii)
d. All of the above are correct.
4492 The Markets for the Factors of Production
55. The value of the marginal product of labor is calculated by multiplying the
a. price of output by the quantity of labor.
b. price of output by the marginal product of labor.
c. wage by the quantity of labor.
d. wage by the marginal product of labor.
56. When a firm hires labor up to the point where the wage is equal to the value of the marginal
product of labor, it is
a. minimizing labor costs.
b. guaranteeing that labor costs do not exceed fixed costs.
c. maximizing the number of workers it can hire and still experience a positive profit.
d. maximizing profit.
The Markets for the Factors of Production 4493
57. Which of the following events would bring about a change in the value of the marginal product of
labor?
a. technological progress that alters the amount a worker can produce
b. a change in the marginal product of labor
c. a change in the price of the product that the firm sells
d. All of the above are correct.
58. The value of the marginal product is
a. total revenue minus total cost.
b. the change in total output divided by the change in an input.
c. the marginal product of an input times the price of the output.
d. total output divided by total inputs.
4494 The Markets for the Factors of Production
59. A competitive, profit-maximizing firm hires workers up to the point where the
a. marginal product equals zero.
b. marginal revenue product equals zero.
c. marginal product equals the wage.
d. value of the marginal product equals the wage.
60. Sunshine’s Organic Market sells organic produce. Assume that labor is the only input that varies
for the firm. The store manager has determined that if she hires 5 workers, the store can sell 150
pounds of produce per day. If she hires 6 workers, the store can sell 170 pounds of produce per
day. The store earns $4 for each pound of produce that it sells, and the manager pays each
worker $60 per day. Which of the following is not correct?
a. For the 6th worker, the marginal product is 20 pounds of produce per day.
b. For the 6th worker, the marginal revenue product is $20 per day.
c. The store earns a higher profit by employing 6 workers than by employing 5 workers.
d. Assuming no changes in either the daily wages paid to store workers or the price at which the
store sells its produce, the firm would maximize profits by hiring a 7th worker so long as the
store can increase its sales to at least 185 pounds per day.
The Markets for the Factors of Production 4495
61. Sunshine’s Organic Market sells organic produce. Assume that labor is the only input that varies
for the firm. The store manager has determined that if she hires 9 workers, the store can sell 200
pounds of produce per day. If she hires 10 workers, the store can sell 230 pounds of produce per
day. The store earns $4 for each pound of produce that it sells, and the manager pays each
worker $60 per day. Which of the following is correct?
a. For the 10th worker, the marginal product is 20 pounds of produce per day.
b. For the 10th worker, the marginal revenue product is $120 per day.
c. The marginal profit from the 10th worker is $120.
d. All of the above are correct.
62. Sunshine’s Organic Market sells organic produce. Assume that labor is the only input that varies
for the firm. The store manager has determined that if she hires 12 workers, the store can sell 300
pounds of produce per day. If she hires 13 workers, the store can sell 370 pounds of produce per
day. The store earns $4 for each pound of produce that it sells, and the manager pays each
worker $80 per day. Assuming no changes in either the daily wages paid to store workers or the
price at which the store sells its produce, what is the minimum number of sales that would allow
the firm to increase its profits by hiring a 14th worker?
a. 374 pounds per day
b. 380 pounds per day
c. 390 pounds per day
d. 450 pounds per day
4496 The Markets for the Factors of Production
63. Omega Custom Cabinets produces and sells custom bathroom vanities. Assume that labor is the
only input that varies for the firm. The firm has determined that if it hires 10 workers, it can
produce and sell 20 vanities per week. If it hires 11 workers, it can produce and sell 22 vanities
per week. It sells each vanity for $800, and it pays each of its workers $1,000 per week. Which of
the following is correct?
a. For the 11th worker, the marginal profit is $600.
b. For the 11th worker, the marginal revenue product is $2,000.
c. The firm is maximizing its profit.
d. If the firm is employing 11 workers, then its profit would increase if it cut back to 10 workers.
64. Carolyn’s Pottery Shop produces vases that sell for $15 each. Assume that labor is the only input
that varies for the firm. If Carolyn hires 10 workers, she can produce and sell 500 vases per
week. If she hires 11 workers, she can produce and sell 560 vases per week. Carolyn pays each
of her workers $400 per week. Which of the following is correct?
a. For the 11th worker, the marginal profit is $500.
b. For the 11th worker, the marginal revenue product is $500.
c. The firm is maximizing its profit.
d. If the firm is employing 11 workers, then its profit would increase if it cut back to 10 workers.
The Markets for the Factors of Production 4497
65. ‘Chuckie’s Pizza Palace produces gourmet pizzas that sell for $20 each. Assume that labor is the
only input that varies for the firm. If Chuckie hires 10 workers, he can produce and sell 600
pizzas per week. If he hires 11 workers, he can produce and sell 650 pizzas per week. Chuckie
pays each of his workers $400 per week. Which of the following is correct?
a. For the 11th worker, the marginal profit is $1,000.
b. For the 11th worker, the marginal revenue product is $1,000.
c. The firm is maximizing its profit.
d. If the firm is employing 11 workers, then its profit would increase if it cut back to 10 workers.
66. A competitive firm sells its output for $60 per unit. Assume that labor is the only input that varies
for the firm. The marginal product of the 10th worker is 20 units of output per day; the marginal
product of the 11th worker is 16 units of output per day. The firm pays its workers a wage of
$150 per day. For the 11th worker, the value of the marginal product of labor is
a. $480.
b. $960.
c. $1,200.
d. $2,400.
4498 The Markets for the Factors of Production
67. A competitive firm sells its output for $50 per unit. Assume that labor is the only input that varies
for the firm. The marginal product of the 10th worker is 10 units of output per day; the marginal
product of the 11th worker is 8 units of output per day. The firm pays its workers a wage of $160
per day. For the 10th worker, the value of the marginal product of labor is
a. $250.
b. $400.
c. $500.
d. $1,280.
68. Sonny’s Surfer Shop produces and sells custom surf boards. Assume that labor is the only input
that varies for the firm. The firm’s owner has determined that if she hires 10 workers, the firm
can produce 10 surf boards per day. If she hires 11 workers, the firm can produce 12 surfboards
per day. The firm sells each surfboard for $2,000, and it pays each of its workers $200 per day.
Which of the following is correct?
a. For the 11th worker, the value of the marginal product of labor is $400.
b. For the 11th worker, the value of the marginal product of labor is $4,000.
c. The firm should not hire the 11th worker since hiring this worker reduces profit.
d. In order to justify hiring the 11th worker the firm will need to raise the price of a surfboard.