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Subjective Short Answer
1. What are the three most important factors of production?
2. Why do we say that the demand for labor is a derived demand?
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?
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 __________.
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?
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 __________.
Figure 18-1. 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 18-1. The relationship depicted on the graph is called a _______ function.
15. Refer to Figure 18-1. The production process depicted on the graph exhibits _______ marginal product of labor.
16. Refer to Figure 18-1. What is the marginal product of the third mechanic?
17. Refer to Figure 18-1. What is the marginal product of the second mechanic?
18. Refer to Figure 18-1. If the shop charges $150 per repair, then what is the value of the marginal product of the second
mechanic?
19. Refer to Figure 18-1. If the shop charges $120 per repair, then what is the value of the marginal product of the third
mechanic?
20. Refer to Figure 18-1. If the shop charges $150 per repair and pays each of its mechanics a wage of $700 per day, then
what is the marginal profit of the second mechanic?
21. Refer to Figure 18-1. If the shop charges $120 per repair and pays each of its mechanics a wage of $400 per day, then
what is the marginal profit of the third mechanic?
22. Refer to Figure 18-1. Suppose the shop charges $125 per repair. Over what interval of wages, W, would the shop
maximize its profit by hiring exactly 4 mechanics? (Determine and such that .)
23. Refer to Figure 18-1. Suppose the shop pays each of its mechanics $210 per day. Over what interval of prices (that is,
charges per car repair, P) would the shop maximize its profit by hiring exactly 3 mechanics? (Determine and such
that .)
24. How does technological advance affect the demand for labor?
25. Jen’s wage decreased, and she responded by enjoying more hours of leisure per day. Is Jen’s behavior consistent with
an upward-sloping labor-supply curve?
26. Willie’s wage increased, and he responded by enjoying more hours of leisure per day. Is Willie’s behavior consistent
with an upward-sloping labor-supply curve?
27. Over the last 60 or so years, the percentage of women with paid jobs has increased significantly. Is this increase in
female employment associated with an increase in the demand for labor, or is it associated with an increase in the supply
of labor?
28. The theory of labor supply is based on the trade-off between __________.
29. Bill is a laborer. What is the relationship between Bill’s wage and his opportunity cost of an hour of leisure?
30. Does an upward-sloping labor-supply curve mean that people respond to a decrease in the wage by enjoying more
leisure or less leisure?
31. Who has a greater opportunity cost of leisure — a president of a major corporation or a babysitter?
32. A highly-paid research scientist works 12 hours a day, while a common laborer works only 5 hours a day. Offer a
likely explanation, using the concept of opportunity cost.
33. Over time, carpenters become aware of more attractive employment opportunities outside of carpentry. Does this
development affect the demand for carpenters, or does it affect the supply of carpenters?
34. Does the movement of workers from other countries to the U.S. affect the demand for labor in the U.S., or does it
affect the supply of labor in the U.S.?
35. Rob was the last worker hired by a firm that is competitive in the labor market. The labor market always is in
equilibrium. Rob’s wage is $30 per hour. When Rob was hired, the firm’s output increased by 4 units per hour as a result.
For what price does the firm sell its output?
36. Angie was the last worker hired by a firm that is competitive in the labor market. The labor market always is in
equilibrium. The firm sells its output for $24 per unit. When Angie was hired, the firm’s output increased by 2 units per
hour as a result. What is Angie’s hourly wage?
37. How does increased immigration affect the labor market? How would the equilibrium wage and the equilibrium
quantity of labor be affected?
38. Suppose the prices of agricultural products such as corn and soybeans increase. What is the effect of these price
increases on the marginal product of the 1,000th farm worker? What is the effect on the value of the marginal product of
the 1,000th farm worker?
39. Define monopsony.
40. If a particular labor market were to convert from a competitive market to a monopsony, what effect would we expect
on the number of workers hired? What effect would we expect on the wage paid to workers?
41. Over time, there have been technological advances in the production of radios. At the same time, it has become less
popular to listen to radio. Taking these two events into account, what would be the likely effect on the wages of workers
who manufacture radios?
42. Suppose a shift of the labor-demand curve results in an increase of $5 in the equilibrium wage. How does this shift
affect the value of the marginal product of labor?
43. Suppose a shift of the demand curve for strawberry pickers causes the equilibrium wage of strawberry pickers to
increase by $2. The price of strawberries is $3 per pound before and after the shift. Does the shift increase the marginal
product of the last picker hired, or does it decrease it? What is the amount of the increase or decrease?
44. Christine works for a firm that makes tires for cars. How is Christine’s wage affected if the price of tires decreases?
45. Christine works for a firm that makes tires for cars. How is Christine’s wage affected if the demand for cars increases?
46. Economic theory predicts a close relationship between productivity and real wages. Does history confirm this
relationship?
47. The U.S. economy experienced a significant slowdown in productivity growth that lasted from about 1973 to about
__________.
48. Suppose XYZ Corporation is currently renting 300 units of capital at a rental price of $500 units per unit. The value of
the marginal product of the 300th unit of capital is $400. How can the corporation increase its profit?
49. The equilibrium purchase price of an acre of land depends upon the current value of the marginal product of land and
upon the __________.
50. When you receive interest on your bank account, that income is part of the economy’s __________ income.
51. 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)?
52. 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.
53. 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.
54. Using the theory of wage determination, explain why wages in developing countries, where levels of capital are small,
are typically quite low.
55. 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.
56. 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.
57. 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?
