1. To say that a firm is competitive in the labor market is to say that the firm
a.
has little or no control over the number of workers it hires.
b.
has little or no control over the wage it pays its workers.
c.
is aggressive in pursuing the most skilled workers in the labor market.
d.
is aggressive in trying to keep its workers’ wages low.
2. To say that a firm is competitive in the labor market is to say that the firm can choose
a.
both the wage it pays its workers and the number of workers it hires.
b.
neither the wage it pays its workers nor the number of workers it hires.
c.
the wage it pays its workers, but it cannot choose how many workers to hire.
d.
the number of workers it hires, but it cannot choose the wage it pays its workers.
3. Because a firm’s demand for a factor of production is derived from its decision to supply a good in the market, it is
called a
a.
b.
c.
d.
4. The term “factor market” applies to the market for
a.
labor.
b.
capital.
c.
land.
d.
All of the above are correct.
5. Factor markets are different from product markets in an important way because
a.
equilibrium is the exception, and not the rule, in factor markets.
b.
the demand for a factor of production is a derived demand.
c.
the demand for a factor of production is likely to be upward sloping, in violation of the law of demand.
d.
All of the above are correct.
6. Factor markets for chocolate bars are influenced by the
a.
demand for chocolate bars.
b.
marginal productivities of labor and capital.
c.
market prices for final goods and services.
d.
All of the above are correct.
7. In order to study labor markets more easily, we make which of the following assumptions about firms?
(i)
Firms sell their products in competitive markets.
(ii)
Firms buy their inputs in competitive markets.
(iii)
Firms maximize profits.
(iv)
Firms maximize revenues.
a.
(iii) only
b.
(i) and (iii) only
c.
(i), (ii), and (iii) only
d.
(i), (ii), (iii), and (iv)
8. Christopher owns and manages a small tea shop. We assume that Christopher
(i)
does not directly care about the quantity of tea that he sells.
(ii)
does not directly care about the number of workers that he hires.
(iii)
wants to maximize the quantity of tea that he sells.
(iv)
wants to minimize the number of workers that he hires.
(v)
wants to maximize profits.
a.
(i) and (ii) only
b.
(i), (ii), and (v) only
c.
(iii) and (iv) only
d.
(iii), (iv), and (v) only
9. Economists refer to the inputs that firms use to produce goods and services as
a.
derived factors.
b.
derived resources.
c.
factors of production.
d.
instruments of revenue.
10. The basic tools of supply and demand apply to
a.
both markets for goods and services and markets for labor services.
b.
markets for goods and services but not to markets for labor services.
c.
markets for goods and services but not to markets for factors of production.
d.
all markets except those in which demand is derived demand.
11. Labor markets are different from most other markets because labor demand is
a.
unresponsive to changes in wages.
b.
unresponsive to changes in the final prices of the products produced by the labor.
c.
a derived demand.
d.
very responsive to labor supply.
12. The production function is the
a.
increase in the amount of output from an additional unit of labor.
b.
marginal product of an input times the price of output.
c.
relationship between the quantity of inputs and output.
d.
shift in labor demand caused by a change in the price of output.
13. The production function is
a.
the increase in the amount of output from an additional unit of labor.
b.
influenced by the productivity of workers.
c.
the marginal revenue produce minus the wage rate paid to workers.
d.
All of the above are correct.
14. Along the vertical axis of the production function we typically measure
a.
revenue.
b.
the marginal product of the input.
c.
the quantity of input.
d.
the quantity of output.
15. Along the horizontal axis of the production function we typically measure
a.
revenue.
b.
the marginal product of the input.
c.
the quantity of input.
d.
the quantity of output.
16. When we focus on labor as an input in the production process, we typically draw the production function by
measuring the
a.
quantity of labor on the horizontal axis and the quantity of output on the vertical axis.
b.
quantity of labor on the horizontal axis and the marginal product of labor on the vertical axis.
c.
quantity of labor on the horizontal axis and the value of the marginal product of labor on the vertical axis.
d.
value of the marginal product of labor on the horizontal axis and the quantity of output on the vertical axis.
17. The marginal product of labor is defined as the change in
a.
output per additional unit of revenue.
b.
output per additional unit of labor.
c.
revenue per additional unit of labor.
d.
revenue per additional unit of output.
18. The marginal product of labor is the
a.
marginal revenue product minus the wage paid to the worker.
b.
total amount of output divided by the total units of labor.
c.
increase in the amount of output from an additional unit of labor.
d.
None of the above is correct.
19. When a production function exhibits a diminishing, but positive, marginal product of labor,
a.
output increases, but at an increasing rate, as more workers are employed.
b.
output increases, but at a decreasing rate, as more workers are employed.
c.
output declines as more workers are employed.
d.
the effects on marginal product are ambiguous.
20. If hiring more workers results in each additional worker contributing successively smaller amounts of output, then
which of the following is present?
a.
diminishing profitability
b.
diminishing total product
c.
diminishing marginal product
d.
Both b and c are correct.
21. Diminishing marginal product affects the shape of the production function in what way?
a.
The slope of the production function decreases as the quantity of input increases.
b.
The production function becomes steeper as the quantity of input increases.
c.
The production function slopes downward.
d.
The production function is horizontal beyond a certain quantity of input.
22. Diminishing marginal product is closely related to
a.
diminishing total cost.
b.
diminishing marginal cost.
c.
increasing price.
d.
increasing marginal cost.
23. Diminishing marginal product occurs when
a.
the marginal product of an input increases as the quantity of the input increases.
b.
the marginal product of an input decreases as the quantity of the input increases.
c.
total output increases as the quantity of an input increases.
d.
total output decreases as the quantity of an input increases.
24. Diminishing marginal product occurs when
a.
the increases to total output are declining.
b.
marginal product is negative.
c.
total output is decreasing.
d.
All of the above are correct.
25. If a firm experiences diminishing marginal productivity of labor, the marginal product
a.
increases as total product increases.
b.
decreases as total product increases.
c.
increases as total product decreases.
d.
decreases as total product decreases.
26. A profit-maximizing, competitive firm for which the marginal product of labor is diminishing also experiences
a.
a perfectly inelastic supply of labor.
b.
a perfectly elastic supply of labor.
c.
a downward-sloping demand for labor.
d.
an upward-sloping demand for labor.
27. Typically, as a firm hires additional workers, the marginal product of labor
a.
decreases, and the value of the marginal product of labor decreases.
b.
stays constant, and the value of the marginal product of labor decreases.
c.
decreases, and the value of the marginal product of labor stays constant.
d.
decreases, and the value of the marginal product of labor increases.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
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.
69. Suppose that a competitive firm hires labor up to the point at which the value of the marginal product equals the wage
and that labor is the only input that varies for the firm. If the firm pays a wage of $700 per week and the marginal product