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910 Miller Economics Today, 16th Edition
14) A profit maximizing monopolist will hire labor up to the point where
A) marginal revenue product equals the price of the product.
B) marginal revenue product is greater than the wage rate.
C) marginal revenue product equals than the wage rate.
D) marginal revenue product is less than the wage rate.
15) A rule of thumb in the employment of resources is to set
A) marginal revenue product (MRP) equal to marginal factor cost (MFC).
B) marginal revenue (MR) equal to marginal cost (MC).
C) marginal physical product equal to marginal resource cost.
D) none of the above
16) Other things equal, a monopolist will hire
A) more workers than a perfectly competitive industry.
B) fewer workers than a perfectly competitive industry.
C) more workers than a perfectly competitive firm.
D) the same number of workers as a perfectly competitive industry would.
17) A monopolist will hire fewer workers than a perfectly competitive firm because
A) the marginal product curve decreases as additional units of labor are hired for a monopoly
but not for a competitive firm.
B) there is a variety of employers in a competitive market and only one in a monopoly.
C) marginal revenue is greater than price for a monopoly while marginal revenue is equal to
price for a competitive firm.
D) to sell an additional unit of the good the competitive firm will keep the price the same
while the monopolist must lower it on all units sold.
Chapter 28 The Labor Market: Demand, Supply and Outsourcing 911
Marginal Marginal
Labor Input Physical Product Revenue
(workers per week) (output per week) MR
25 150 9.00
26 140 8.50
27 130 8.00
28 120 7.50
29 110 7.00
18) Refer to the above table. What does the marginal revenue product equal when 26 workers are
hired a week?
A) $8.50 B) $26 C) $221 D) $1190
19) Refer to the above table. What does the marginal revenue product equal when 27 workers are
hired a week?
A) $1040 B) $216 C) $16.25 D) $8
20) Refer to the above table. What does the marginal revenue product equal when 28 workers are
hired a week?
A) $1040 B) $900 C) $210 D) $7.50
21) Refer to the above table. How many worker will this firm hire if the weekly wage rate is $1350?
A) 28 B) 25 C) 26 D) 27
22) Refer to the above table. How many workers will this firm hire if the weekly wage rate is $770?
A) 26 B) 27 C) 28 D) 29
23) Refer to the above table. How many workers will this firm hire if the weekly wage rate is $900?
A) 26 B) 27 C) 28 D) 29
24) Refer to the above table. How do we know that this is not a competitive firm?
A) The marginal physical product decreases as the amount of labor hired increases.
B) The marginal revenue changes as output changes.
C) The marginal revenue product decreases as the amount of labor increases.
D) Marginal physical product cannot be computed for competitive firms.
25) If we assume competitive labor markets, the supply curve of labor when the firm is a monopoly
is
A) upward sloping. B) vertical.
C) horizontal. D) downward sloping.
26) In an imperfectly competitive labor market, the firm is faced with a(n) ________ MPP curve and
a(n) ________ MR curve.
A) downward sloping; upward sloping B) downward sloping; downward sloping
C) upward sloping; downward sloping D) downward sloping; horizontal
Chapter 28 The Labor Market: Demand, Supply and Outsourcing 913
Quantity of Marginal Physical Price of Marginal
Workers Total Product Product Final Product Revenue Product
1 7 $10
2 18 9
3 30 8
4 40 7
5 48 6
6 52 5
27) In the above table, what is the marginal revenue product of the 4th worker?
A) $92 B) $70 C) $40 D) $8
28) In the above table, what is the marginal revenue product of the 1st worker?
A) $92 B) $70 C) $40 D) $8
29) In the above table, what is the marginal revenue product of the 2nd worker?
A) $99 B) $70 C) $110 D) $9
30) In the above table, if the marginal factor cost is $20, how many workers would be hired?
A) 3 B) 4 C) 5 D) 6
31) In the above table, if the marginal factor cost is $48, how many workers would be hired?
A) 3 B) 4 C) 5 D) 6
32) In the above table, if the marginal factor cost is $96, how many workers would be hired?
A) 3 B) 4 C) 5 D) 2
33) In constructing the monopolist s input demand curve, which of the statements is FALSE?
A) The demand curve has a negative slope due to the law of diminishing marginal product.
B) Marginal revenue is always positive.
C) A monopoly restricts output and hires fewer units of labor than a perfectly competitive
firm.
D) The supply curve a monopoly faces is horizontal because the monopoly is a price taker.
34) The MRP curve for a monopolist in the product market is
A) the same as the MRP curve for a perfectly competitive firm in the product market.
B) to the left and below the MRP curve for a perfectly competitive firm in the product market.
C) to the right and above the MRP curve for a perfectly competitive firm in the product
market.
D) upward sloping and below the MFC curve for a perfectly competitive firm in the product
market.
35) When a firm has monopoly power, it
A) hires fewer workers because its marginal revenue lies below the demand curve.
B) hires more workers because its marginal revenue lies below the demand curve.
C) hires fewer workers because its marginal revenue lies above the demand curve.
D) hires more workers because its marginal revenue lies above the demand curve.
36) If the demand for a monopolist s product increases, its
A) marginal revenue increases, making it more profitable to hire more workers.
B) marginal revenue increases, making it more profitable to hire fewer workers.
C) marginal revenue decreases, making it more profitable to hire more workers.
D) marginal revenue decreases, making it more profitable to hire fewer workers.
37) Other things being equal, the monopolist hires fewer workers than would be hired than a
perfectly competitive industry. Do you agree or disagree? Why?
38) What does a monopolist s demand curve for labor look like? How does it compare to the market
demand curve for a competitive industry? What does the supply curve of labor to a monopolist
look like? Explain.
28.6 The Utilization of Other Factors of Production
1) In a perfectly competitive labor market, the least cost combination rule for resource use
A) requires that resources be used in combinations such that marginal products are equal.
B) requires that the marginal physical product per dollar spent for each resource is equalized.
C) assures the firm an economic profit.
D) assures the firm a normal profit.
2) In the employment of any resource, a firm should
A) equate marginal revenue product with the cost of the additional resource.
B) hire each input unit that adds more to revenue than it adds to costs.
C) hire each input unit provided its marginal physical product is greater than zero.
D) A and B are both correct.
3) Assume that a perfectly competitive firm faces a fixed wage rate of $4 and a constant per unit
cost of capital of $2. If the marginal product of labor and capital are 16 and 6, respectively, then
to maximize profits the firm should
A) use relatively more capital. B) use relatively less capital.
C) increase all inputs proportionately. D) decrease all inputs proportionately.
4) Assume that a perfectly competitive firm faces a fixed wage rate of $4 and a constant per unit
cost of capital of $2. If the marginal product of labor and capital are 16 and 6, respectively, then
to maximize profits the firm should
A) use relatively more labor. B) use relatively less labor.
C) increase all inputs proportionately. D) decrease all inputs proportionately.
5) If a firm faces perfectly competitive product and factor markets and the marginal product of
labor and capital are 4 and 9, respectively, while the wage rate is $2 and the rental rate on
capital is $4, the firm should
A) use relatively more capital. B) use relatively less capital.
C) increase all inputs proportionately. D) decrease all inputs proportionately.
6) If a firm faces perfectly competitive product and factor markets and the marginal product of
labor and capital are 4 and 9, respectively, while the wage rate is $2 and the rental rate on
capital is $4, the firm should
A) use relatively more labor. B) use relatively less labor.
C) increase all inputs proportionately. D) decrease all inputs proportionately.
7) A firm will hire a unit of input up to the point where
A) the marginal cost of the input equals the marginal cost of output.
B) the marginal revenue product of the input is equal to the marginal factor cost of the input.
C) the price of the input is equal to the price of output.
D) the marginal physical product of the input is equal to the price of output.
8) If the marginal revenue product of an input exceeds the marginal factor cost of the input, the
firm
A) should hire less of the input. B) is maximizing profit.
C) is not on its marginal cost curve. D) should increase its use of the input.
9) When a firm is hiring an input such that the marginal revenue product of the input is equal to
the marginal factor cost of the input, the firm
A) should be expanding output. B) is hiring too little of the input.
C) is maximizing economic profit. D) is producing too much output.
10) A profit maximizing firm will hire additional workers until
A) the additional cost associated with hiring the last worker equals the average wage rate of
the workers.
B) the additional cost associated with hiring the last worker equals the additional revenue
generated by that worker.
C) the extra revenue generated by the last worker hired equals zero.
D) the extra cost associated with hiring the last worker equals the price of the good produced.
11) Profit maximization requires that
A) the marginal factor cost of every input equals that input s marginal physical product.
B) the marginal factor cost of every input equals that input s marginal revenue product.
C) the amount of one input hired divided by the amount of another input hired equals the
total costs of the first input hired divided by the total costs of the second input.
D) equal amounts of each input are employed.
12) The profit maximizing combination of resources
A) usually involves more of each input hired than the cost minimizing combination of
resources.
B) usually involves less of each input hired than the cost minimizing combination of
resources.
C) usually involves hiring more of some resources and less of other resources than the cost
minimizing combination of resources.
D) is also the cost minimizing combination of resources.
13) Profit maximization occurs where
A) each factor is used up to the point where its marginal revenue product is equal to its
marginal factor cost.
B) each factor is used up to the point where its marginal physical product is equal to its
marginal factor cost.
C) average variable cost equals marginal cost.
D) average variable cost equals average total cost.
14) If a perfectly competitive firm is currently employing workers to the point where the value of
the last worker s marginal product is equal to the wage rate, and the government imposes a
minimum wage higher than the value of the worker s marginal product, we can predict that
A) the firm will pay the higher wage rate and not change the number of workers hired.
B) the firm will no longer employ the marginal worker.
C) the firm will increase its price.
D) the firm will employ more workers.
15) To minimize total costs for a particular rate of output, a firm will equate
A) the average cost of each factor.
B) the marginal revenue of each factor.
C) the marginal physical product per dollar spent on each factor.
D) the marginal revenue product and variable marginal revenue for each factor.
16) Cost minimization suggests that two inputs should be employed to the point where
A) the marginal cost of each input is identical.
B) the marginal revenue product of each input is identical.
C) the marginal physical product per dollar spent on each input is identical.
D) the extra contribution to physical output of the inputs is identical.
17) If the marginal physical product (MPP) of the last dollar spent on labor is only half as large as
the MPP from the last dollar spent on capital, this firm should
A) increase its use of labor and sell employ less capital.
B) employ more capital.
C) increase its use of both labor and capital.
D) maintain its current factor utilization pattern.
18) If a firm uses only capital and labor as inputs, then what should the firm do at a given rate of
production if the marginal physical product of labor per last dollar spent is higher than the
marginal physical product of capital per last dollar spent?
A) The firm should increase both the quantity of capital and the quantity of labor.
B) The firm should decrease both the quantity of capital and the quantity of labor.
C) The firm should increase the quantity of capital and reduce the quantity of labor.
D) The firm should decrease the quantity of capital and increase the quantity of labor.
19) If a firm uses only capital and labor as inputs, then what should the firm do at a given rate of
production if the marginal physical product of labor per last dollar spent is lower than the
marginal physical product of capital per last dollar spent?
A) The firm should increase both the quantity of capital and the quantity of labor.
B) The firm should decrease both the quantity of capital and the quantity of labor.
C) The firm should increase the quantity of capital and reduce the quantity of labor.
D) The firm should decrease the quantity of capital and increase the quantity of labor.
20) A perfectly competitive firm discovers that its MRPLdivided by the wage equals 1.25. The firm
should
A) check the MRP of the other inputs and divide them by their prices. If they are all equal to
1.25 it is maximizing profits.
B) hire more labor.
C) purchase more capital.
D) try to pay a lower wage rate.
21) A firm that wants to maximize profits should hire each input to the point where
A) its marginal revenue product divided by the price of the input equals one.
B) its marginal revenue product divided by its marginal physical product equals the wage.
C) its marginal revenue product divided by the product price equals one.
D) its marginal physical product divided by the price of the input equals the product price.
22) If a firm wants to maximize profits it should
A) hire lots of capital and very little labor since labor needs to be trained.
B) hire unskilled labor rather than skilled labor since unskilled labor is cheaper.
C) equate the marginal physical product for each input to the price of the input.
D) equate the marginal revenue product for each input to the price of the input.
23) A firm that maximizes profits also
A) is inefficient.
B) cuts corners in production processes so that its products are made too cheaply.
C) uses the least cost combination of resources.
D) pays input prices lower than other firms do.
24) If a firm wants to maximize profits it should
A) hire each factor of production up to the point at which the marginal physical product per
last dollar spent is equalized.
B) hire each factor of production up to the point at which the marginal revenue product per
last dollar spent is equalized.
C) hire each factor of production up to the point at which the marginal factor cost per last
dollar spent is equalized.
D) hire the same number of units of all inputs.
25) The cost minimizing rule is that a firm should utilize inputs such that the marginal physical
product of an input divided by the price of the input is the same for all inputs. This is also the
profit maximizing rule because
A) we obtain the profit maximizing rule by multiplying each ratio by the marginal revenue
produced.
B) we obtain the profit maximizing rule by multiplying each ratio by the product price,
which is the same for each input.
C) the profit maximizing rule is just the inverse of the cost minimizing rule.
D) they are exactly the same.
26) A profit maximizing firm will hire workers up to the point at which
A) MRP MFC. B) MRP MFC. C) MRP MFC. D) MRP MPP.
27) For a firm in a perfectly competitive labor market,
A) W MFC. B) W MFC. C) W MRP. D) W MFC.
28) If a firm wants to maximize profits, it should hire workers up to the point at which
A) total factor cost total revenue.
B) marginal factor cost marginal revenue product.
C) marginal utility marginal cost.
D) total social benefit total social costs.
29) Profit maximizing employment is the quantity of labor at which
A) marginal revenue product is equal to marginal factor cost.
B) marginal revenue product is equal to product price.
C) marginal factor cost is equal to marginal revenue.
D) marginal factor product is equal to product price.
30) In a perfectly competitive situation, the profit maximizing hiring situation for all inputs being
used is where
A) the MRP of each input is equal to the price of each input.
B) the MRP of each input is greater than the price of each input.
C) the MRP of each input is less than the price of each input.
D) There is no relationship between MRP and the prices of the inputs.
31) The profit maximizing combination of resources in a perfectly competitive situation occurs at
the point at which
A) MRP of labor price of labor (wage rate).
B) MRP of land price of land (rental rate per unit).
C) MRP of capital price of capital (cost per unit of service).
D) All of the above are correct.
32) The following table depicts both the product and labor markets for imported coffee. What is the
total revenue when 15 workers per day are hired?
Labor Input Total Product
(workers per day) Physical Product Price ($)
10 100 50
11 110 49
12 120 48
13 130 47
14 140 46
15 150 45
A) $5,000 B) $6,750 C) $7,350 D) $7,500
33) A perfectly competitive firm is hiring variable resources M and N. It will minimize total costs
A) MRPm
/
MFCmMRPn
/
MFCn. B) MRPmMFCmMRPnMFCn.
C) Pm
/
MPPmPn
/
MPPn. D) MPPm
/
PmMPPn
/
Pn.
34) When a firm has maximized profits,
A) it has also minimized total costs.
B) the marginal product of each input is also maximized.
C) the marginal physical product is greater than the input price for all inputs.
D) its marginal cost is zero.
35) For a firm that uses land, labor and capital as inputs, how should the inputs be utilized in order
to minimize total costs?
36) Show how the profit maximizing rule for hiring resources is equivalent to the cost minimizing
rule.
37) Explain what the profit maximizing combination of resources is for the perfectly competitive
firm.
38) Suppose a firm employs only capital and labor as inputs. Explain how the firm should allocate
its inputs in order to maximize profits in a perfectly competitive market.
