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The Markets for the Factors of Production 4699
61. The marginal product of land depends on the quantity of land that is available.
a. True
b. False
62. Suppose an influenza pandemic were to significantly decrease the population of a country. We
would predict a decrease in the marginal product of land in that country.
a. True
b. False
63. For profit-maximizing, competitive firms, the demand curve for each factor of production equals
the value of the marginal product of that factor.
a. True
b. False
4700 The Markets for the Factors of Production
64. A change in the supply of any one factor alters the earnings of all the other factors.
a. True
b. False
65. An event that changes the supply of any factor of production can alter the earnings of all the
factors.
a. True
b. False
The Markets for the Factors of Production 4701
66. Describe the difference between a diminishing marginal product of labor and a negative marginal
product of labor. Why would a profit-maximizing firm always choose to operate where the
marginal product of labor is decreasing (but not negative)?
67. Explain how a firm values the contribution of workers to its profitability. Would a profit-
maximizing competitive firm ever stop increasing employment as long as marginal product is
rising? Explain your answer.
4702 The Markets for the Factors of Production
68. In the 1980s, the dangerous Ebola virus entered the United States through contaminated monkeys
that were imported for use in medical experiments. Suppose this virus had not been contained but
had spread to the general population. Assume that the virus is lethal in half of the people who are
exposed to it. Describe the resulting effect on labor productivity.
69. Using the theory of wage determination, explain why wages in developing countries, where levels
of capital are small, are typically quite low.
The Markets for the Factors of Production 4703
70. A recent flood in the Midwest has destroyed much of the farmland that lies in fertile regions near
the rivers. Describe the effect of the flood on the marginal productivity of land, labor, and capital.
How would the flood affect the price of inputs? Provide some examples.
71. Describe the process by which the market for capital and the market for land reach equilibrium.
As part of your description, elaborate on the role of the stock of the resource versus the flow of
services from the resource.
4704 The Markets for the Factors of Production
72. Describe the difference between the purchase price of capital and the rental price of capital. If
you know the value of marginal product from the flow of capital services, how would you
determine the market price for the capital stock?
Problems
1. What are the three most important factors of production?
2. Why do we say that the demand for labor is a derived demand?
The Markets for the Factors of Production 4705
3. The demand for rocket scientists is inseparably linked to the supply of .
4. Restaurants’ demand for cooks and waiters is inseparably linked to the supply of .
5. A firm hires some number of custodians to clean a large warehouse. When only a few custodians
are hired, they can quickly find and remove a lot of dust and debris. As the number of custodians
increases, additional custodians have to go to greater lengths and spend more time to find and
remove additional dust and debris. What property of production functions is relevant to the
custodians’ situation?
4706 The Markets for the Factors of Production
6. What is the relationship between the marginal product of labor and the value of the marginal
product of labor?
7. Does history suggest that most technological progress is labor-saving or labor-augmenting?
8. A competitive, profit-maximizing firm hires labor up to the point at which the wage is equal to the
.
The Markets for the Factors of Production 4707
9. When a competitive firm hires labor up to the point at which the value of the marginal product of
labor equals the wage, it also produces output up to the point at which marginal cost is equal to
.
10. A competitive, profit-maximizing pays its workers a wage of $200 per day and it sells its output for
$10 per unit. Determine the marginal product, on a daily basis, of the last worker hired.
11. A competitive, profit-maximizing pays its workers a wage of $294 per day. The marginal product
of the last worker is 35 units of output. What is the firm’s marginal cost of producing its last unit
of output?
4708 The Markets for the Factors of Production
12. What are the typical effects on the labor market of technological progress?
13. The substantial increases in output per worker over the last 50 or so years are largely explained
by .
The Markets for the Factors of Production 4709
Figure 18-12. The figure shows the relationship between the number of mechanics hired and the
number of car repairs performed per day at a car-repair shop.
14. Refer to Figure 18-12. The relationship depicted on the graph is called a _______ function.
15. Refer to Figure 18-12. The production process depicted on the graph exhibits _______
marginal product of labor.
4710 The Markets for the Factors of Production
16. Refer to Figure 18-12. What is the marginal product of the third mechanic?
17. Refer to Figure 18-12. What is the marginal product of the second mechanic?
18. Refer to Figure 18-12. If the shop charges $150 per repair, then what is the value of the
marginal product of the second mechanic?
