Page 1
1.
G. Reecy’s Hamburger Joint is a fast-food restaurant. Which factor is associated with
production?
A)
the raw meat used for the hamburgers
B)
the hamburger buns
C)
the cook
D)
the concentrate that is diluted to make the soft drinks
2.
Human capital:
A)
consists of man-made resources such as buildings and machines.
B)
is the improvement in labor produced by education and knowledge that is
embodied in the workforce.
C)
has become less important because of the progress in technology.
D)
is the improvement in labor produced by education, which has become less
important because of the progress in technology.
3.
Which factor is not associated with production at a college?
A)
the faculty
B)
classroom buildings
C)
electricity
D)
the computer labs
4.
Which factor is associated with production at a college?
A)
the faculty
B)
lab concentrations to use in experiments
C)
electricity
D)
Scantron sheets
5.
Which factor is an input in the production of croissants?
A)
ovens
B)
pastry chefs
C)
flour
D)
dough mixers
Page 2
6.
The key distinction between a factor of production and an input is that:
A)
an input is an enduring source of income, but a factor of production is used up in
production.
B)
a factor of production earns income from selling its services over and over again,
but an input does not.
C)
an input earns income from selling its services over and over again, but a factor of
production does not.
D)
a factor of production has limited earning potential.
7.
Human capital is the improvement in _____ produced by _____.
A)
physical capital; technology
B)
labor; education and knowledge
C)
labor; physical capital
D)
labor; management
8.
Manufactured resources such as equipment, buildings, and tools are also known as:
A)
human capital.
B)
labor.
C)
physical capital.
D)
natural resources.
9.
Now that Naila has her bachelor’s degree, she has decided to pursue her master’s degree.
Naila’s choice of additional education is called an investment in:
A)
natural resources.
B)
human capital.
C)
physical capital.
D)
labor.
10.
When the demand for automobiles is high, the demand for workers who build
automobiles is high. This relation between the market for automobiles and the market
for the labor that builds automobiles is why demand in a factor market is called:
A)
the marginal productivity theory of income distribution.
B)
a compensating differential.
C)
the factor distribution of income.
D)
a derived demand.
Page 3
11.
The demand for factors of production is called a derived demand because it is:
A)
derived from the demand for the outputs that are produced by the factors of
production.
B)
derived from the available supply of factors, such as land, that can be
overexploited.
C)
not easy to determine and must be derived by a technical (and often complicated)
process.
D)
derived on the basis of questions posed to residents during the census.
12.
The demand for a factor of production is a(n) _____ demand.
A)
derived
B)
implicit
C)
direct
D)
distributional
13.
Factor demand is called derived demand because it:
A)
requires the use of other factors.
B)
depends on demand for the product that the factor produces.
C)
has a downward-sloping demand curve.
D)
has a constant marginal factor cost.
14.
The category “compensation of employees”:
A)
includes the earnings of proprietors.
B)
doesn’t include benefits such as health insurance.
C)
refers in large part to the return on human capital.
D)
includes payments in kind that are common in rural areas.
15.
The category “compensation of employees” doesn’t capture the full income of labor
because:
A)
it doesn’t include the earnings of proprietors.
B)
it doesn’t include benefits such as health insurance.
C)
a sizable fraction of it can be attributed to the return on human capital.
D)
it excludes payments in kind that are common in rural areas.
16.
In the United States in 2016, approximately _____% of total income in the economy
took the form of compensation of employees.
A)
40
B)
9
C)
90
D)
70
Page 4
17.
The largest component of the factor distribution of income in the United States is:
A)
interest and rents.
B)
taxes.
C)
corporate profits.
D)
compensation of employees.
18.
In terms of contribution to total income in the United States, the single most important
factor of production is:
A)
capital.
B)
labor.
C)
land.
D)
entrepreneurship.
19.
Which statement is not true about the factor distribution of income?
A)
It is the division of total income among labor, land, and capital.
B)
Labor receives the bulk of the income in the modern U.S. economy.
C)
The returns to human capital are easily measured.
D)
A part of the proprietor’s income should be considered wages that the business
owners pay themselves.
20.
In the United States in 2016, approximately 70% of total income, by far the largest
share, took the form of:
A)
compensation of employees.
B)
corporate profits.
C)
interest income.
D)
rental income.
21.
In terms of contribution to total U.S. income, the factor of production that receives the
smallest share is:
A)
capital.
B)
labor.
C)
land.
D)
entrepreneurship.
Page 5
22.
When labor is hired in a competitive market, the value of the marginal product of labor
is computed by:
A)
multiplying the price of the output by the marginal product of labor.
B)
multiplying the price of the output by the wage paid to labor.
C)
multiplying the wage paid to labor by the marginal product of labor.
D)
dividing the marginal product of labor by the price of the output.
23.
Liyun owns a small flower shop, and the industry is perfectly competitive. She is
considering whether to hire an additional worker. The wage rate for the worker is $500
per week; the marginal product of the additional worker would be 100 units per week;
and the price of the units is $10 each. Liyun should:
A)
hire the additional worker.
B)
not hire the additional worker.
C)
raise the price of the flower arrangements that she sells.
D)
Not enough information is given to answer the question.
24.
As a rule, a profit-maximizing restaurant owner employs each factor of production up to
the point at which the value of the marginal product of the _____ unit of the factor
employed is _____ that factor’s price.
A)
first; greater than
B)
last; equal to
C)
first; equal to
D)
last; less than
25.
Using standard economic theory, a firm should continue hiring workers until:
A)
the marginal product of labor times price equals demand.
B)
the quantity of labor supplied equals the quantity of labor demanded.
C)
the marginal product of labor times price equals the workers’ wage.
D)
the marginal product of labor times the workers’ wage wage equals price.
26.
The value of the marginal product is equal to:
A)
marginal product times the wage rate.
B)
average product times the wage rate.
C)
marginal product times the price per unit of output.
D)
average product times the price per unit of output.
Page 6
27.
(Table: Droids and Moisture Output) Use Table: Droids and Moisture Output. Luke
Skywalker uses droids to operate a moisture farm in a perfectly competitive market on
the planet Tatooine. A barrel of moisture sells for 50 republic credits. A droid costs 675
republic credits per month to rent. How many droids should Luke rent?
A)
one
B)
two
C)
three
D)
four
28.
(Table: Workers and Art Output) Use Table: Workers and Art Output. Suppose that you
achieve your dream of opening an art studio specializing in selling mud statues. You
pay $10 in fixed costs for equipment and $9 per day to each of your workers who make
the mud statues. The industry is perfectly competitive, with a current market price of $1.
How many statues should you produce?
A)
25
B)
35
C)
43
D)
3
Page 7
29.
The amount by which the use of an additional unit of a factor of production increases a
firm’s total revenue during a period is called the:
A)
value of the marginal product.
B)
average product.
C)
marginal factor cost.
D)
marginal physical product.
30.
The value of the marginal product is the:
A)
change in total output resulting from a unit change in the quantity of a factor.
B)
change in total revenue resulting from a unit change in the quantity of a factor.
C)
change in total cost resulting from a unit change in the quantity of a factor.
D)
ratio of total revenue to the quantity of a factor employed.
31.
If the extra output that is produced by hiring one more unit of labor adds more to _____
than to _____, the firm will increase its profit by increasing the use of labor.
A)
total cost; total revenue
B)
total revenue; total cost
C)
marginal cost; marginal revenue
D)
marginal product; marginal cost
32.
The Bountiful Bakery is considering hiring another pastry chef. The bakery knows the
average product of its chefs currently is 15 dozen croissants per day. It also believes that
the next chef hired will produce an extra 12 dozen croissants per day. A dozen
croissants sell for $30. The bakery should hire another worker:
A)
only if the new chef’s marginal product is 12 dozen or more.
B)
only if the new chef’s daily wage is $450 or less.
C)
only if the new chef’s daily wage is $360 or less.
D)
because the marginal product is below the average product.
33.
The amount by which an additional unit of a factor increases a firm’s total _____ during
a period is the _____.
A)
revenue; value of the marginal product
B)
revenue; marginal factor cost
C)
cost; value of marginal product
D)
cost; marginal product
Page 8
34.
Which expression best describes the value of the marginal product?
A)
the change in total output generated by a unit change in the quantity of a factor
B)
the change in total revenue generated by a unit change in the quantity of a factor
C)
the change in marginal cost generated by a unit change in the quantity of a factor
D)
the ratio of total revenue to the quantity of a factor employed
35.
The value of the marginal product is calculated as:
A)
MP / MR.
B)
MP / P.
C)
MP * P.
D)
MR / MP.
36.
The amount that an additional unit of a factor adds to a firm’s total revenue is called the:
A)
marginal revenue.
B)
marginal cost.
C)
additional revenue product.
D)
value of the marginal product.
37.
The marginal product times product price equals the:
A)
marginal revenue.
B)
value of the marginal product.
C)
additional revenue product.
D)
marginal cost.
38.
Which formula is CORRECT?
A)
VMPL = MC * P.
B)
VMPL = MPL * P.
C)
MPL = VMPL * P.
D)
VMPL / MC = TR.
39.
Which statement is true?
A)
The marginal product is the change in total revenue divided by a one-unit change in
a factor.
B)
The marginal revenue is the change in total output divided by the change in output.
C)
The value of the marginal product is the marginal product times the price.
D)
The marginal cost is equal to the average total cost.
Page 9
40.
Which statement is true?
A)
The value of the marginal product of labor equals the marginal product of labor
times price.
B)
The value of the marginal product of labor equals a one-unit change in a factor
divided by the change in total revenue.
C)
Marginal cost equals change in total revenue divided by the one-unit change in a
factor.
D)
The value of the marginal product of labor equals the change in the quantity of a
factor times the price of the factor.
41.
A profit-maximizing firm will base its decision to hire workers on the additional costs
and benefits of each worker. If the extra output that is produced by hiring one more unit
of labor adds more to _____ than to _____, the firm will increase its profit by increasing
the use of labor.
A)
total cost; total revenue
B)
total revenue; total cost
C)
marginal cost; marginal revenue
D)
marginal cost; total cost
42.
A firm has hired the profit-maximizing number of workers when the wage is:
A)
less than the price of the product.
B)
greater than the average product of the last worker hired.
C)
equal to the average product of the last worker hired.
D)
equal to the value of the marginal product of labor of the last worker hired.
43.
Suppose that Billy Bud’s Bucking Broncos employs 20 workers at a daily wage of $60
each. The average product of labor is 30 bucking broncos per day; the marginal product
of the last worker is 12 bucking broncos per day; and total fixed cost is $3,600 for
equipment. What is the marginal cost of the last bucking bronco produced?
A)
$0.20
B)
$5.00
C)
$240.00
D)
$720.00
44.
To maximize profits, a firm will employ workers until for the last worker employed:
A)
marginal product of labor is equal to the nominal wage rate.
B)
the value of the marginal product of labor is equal to the wage rate.
C)
the value of the marginal product of labor is equal to the price per unit of output.
D)
the value of the marginal product of labor is as high as possible.
Page 10
45.
Maria operates a persimmon orchard in southeastern Oklahoma. She pays her workers
$248 per week to pick and process persimmons, and she sells her persimmons for $6 per
bushel. If she adds one more worker and that worker can pick and process 44 bushels
per week, what will be the profit for Maria from hiring that worker?
A)
$0
B)
$16
C)
$264
D)
$544
46.
For the Tampa Bay Rays baseball team, the value of the marginal product curve is the
team’s labor _____ curve. This means the marginal product curve has a _____ slope.
A)
demand; positive
B)
supply; positive
C)
demand; negative
D)
supply; negative
47.
Jose, a corn farmer operating in a perfectly competitive market, pays his workers $8 an
hour. At his current level of labor use, the marginal product of an additional hour of
labor is three bushels of corn. The market price of corn is $2.75. To maximize his
profits, Jose should:
A)
hire more labor.
B)
hire less labor.
C)
not change the amount of labor.
D)
This question cannot be answered without knowing the average product of labor.
48.
Barry’s Brewpub is considering hiring more brewmasters. The market wage for a
brewmaster is $120 per day. The average brewmaster produces 40 pints of beer per day,
but Barry expects the next brewmaster to produce only 20 pints per day. Assuming the
market for beer is perfectly competitive, Barry’s Brewpub will hire another brewmaster
only if:
A)
a pint of brew sells for $3.
B)
the new brewmaster can produce 40 pints.
C)
a pint of brew sells for $2.
D)
a pint of brew sells for $6 or more.
Page 11
49.
Barry’s Brewpub is considering hiring more brewmasters. A pint of brew sells for $3.
The market wage of a brewmaster is $150 per day. Assuming that the market for beer is
perfectly competitive, Barry’s Brewpub will hire another brewmaster only if Barry
believes the new brewmaster will:
A)
produce the same number of pints per day as the last brewmaster hired.
B)
produce 50 or more pints per day.
C)
raise average production to 50 or more pints per day.
D)
increase the marginal product by $150 per day.
50.
Mary is considering hiring another worker in an assembly line for Bluetooth speakers.
Mary knows the average product of labor is 15 speakers per day. She also believes that
the next worker hired will produce an extra 12 speakers per day. A speaker sells for $10.
Assuming that the market for speakers is perfectly competitive, Mary should hire
another worker:
A)
only if the new worker’s marginal product is 12 or more.
B)
only if the new worker’s daily wage is $150 or less.
C)
only if the new worker’s daily wage is $120 or less.
D)
since the marginal product is below the average product.
51.
The individual producer’s labor demand curve is the:
A)
marginal product of labor curve.
B)
value of the average product of labor curve.
C)
average product curve.
D)
value of the marginal product of labor curve.
52.
All perfectly competitive fast-food firms are hiring the profit-maximizing quantity of
labor and are paying their workers $7 per hour. If the government raises the minimum
wage to $8 per hour:
A)
the value of the marginal product will exceed the wage, and firms will hire more
workers.
B)
the value of the marginal product will be less than the wage, and firms will lay off
some workers.
C)
firms will increase their prices to keep the value of the marginal product equal to
the wage.
D)
firms will have to exit the industry since the value of the marginal product is
always less than the wage.
Page 12
53.
As the _____ of labor used in production increases, ceteris paribus, eventually the
_____ of labor will _____.
A)
price; supply; increase
B)
quantity; marginal product; fall
C)
quantity; marginal product; rise
D)
quantity; value of the marginal product; rise
54.
When a firm is a perfect competitor in the product market, its demand curve for labor
will _____ because the _____ product declines as additional workers are hired.
A)
slope downward; marginal
B)
be horizontal; average
C)
slope upward; marginal
D)
slope downward; average
55.
A firm’s demand curve for labor is:
A)
the upward-sloping portion of its value of the marginal product curve.
B)
the downward-sloping portion of its marginal product curve.
C)
the downward-sloping portion of its value of the marginal product curve.
D)
horizontal for the firm in perfect competition.
56.
The quantity demanded of labor will decrease if:
A)
the price of the product that the labor produces increases.
B)
the productivity of labor increases.
C)
the price of labor rises.
D)
there is an increase in the supply of a factor labor uses.
57.
Suppose there are diminishing returns to labor. If the _____ of labor hired by a firm
increases, holding everything else constant, the _____ labor will _____.
A)
price; demand for; increase
B)
quantity; marginal product of; fall
C)
quantity; marginal product of; rise
D)
quantity; value of the marginal product of; rise
58.
If the marginal product is _____, the value of marginal product must be _____.
A)
rising; falling
B)
falling; falling
C)
falling; rising
D)
rising; zero
Page 13
59.
A firm’s demand curve for labor is:
A)
its marginal cost curve.
B)
its marginal product curve.
C)
its value of the marginal product of labor curve.
D)
horizontal if it is in perfect competition.
60.
A profit-maximizing firm will hire workers up to the quantity of labor where:
A)
VMPL > W.
B)
VMPL = W.
C)
VMPL < W.
D)
MP * MR = VMPL.
61.
If a firm hires labor such that W > VMPL, then profit:
A)
is maximized.
B)
can be increased by hiring less labor.
C)
can be increased by hiring more labor.
D)
can be increased by decreasing the price of the output.
62.
If a firm hires labor such that W < VMPL, then profit:
A)
is maximized.
B)
can be increased by hiring less labor.
C)
can be increased by hiring more labor.
D)
can be increased by increasing the wage.
63.
If a firm hires labor and with its current employees W = VMPL, then profit:
A)
is maximized.
B)
can be increased by hiring less labor.
C)
can be increased by hiring more labor.
D)
can be increased by increasing the wage rate.
64.
Which statement is true?
A)
If W < VMPL, the firm should hire more labor.
B)
If W > VMPL, the firm should hire more labor.
C)
If W = VMPL, the firm should hire more labor.
D)
If W > 0, the firm should shut down.
Page 14
65.
A firm’s demand curve for labor in a perfectly competitive market is the
downward-sloping portion of its _____ curve.
A)
marginal revenue
B)
average total cost
C)
value of the marginal product of labor
D)
total revenue
66.
If the wage rate rises, firms will find that:
A)
their labor demand curve shifts leftward.
B)
their labor demand curve shifts rightward.
C)
they move upward and to the left along the labor demand curve.
D)
they move downward and to the right along the labor demand curve.
67.
Suppose the labor market for plumbers is in equilibrium. Which occurrence might
decrease the wage for plumbers?
A)
An economic boom increases the demand for new homes.
B)
The plumbers union establishes a rigorous certification test that is difficult for
aspiring plumbers to pass.
C)
Unemployed manufacturing workers attend technical schools to learn the plumbing
trade.
D)
A minimum wage is imposed in the market for plumbers.
68.
An increase in the market demand for electricians in the factor market might occur if
the:
A)
price of electrical repair and installation services rises.
B)
demand for new houses falls.
C)
price of copper electrical wiring increases.
D)
wage for electricians falls.
69.
Benny employs people to sell candy bars at intersections. Assume that Benny can obtain
candy bars to sell for no cost. The marginal product of the last worker Benny hired is 20
candy bars per hour. Benny pays $7 per worker per hour and sells the candy bars for $1
each. If the price of candy bars rises to $2, then the:
A)
demand for labor increases.
B)
demand for labor decreases.
C)
quantity demanded of labor increases, but the demand for labor curve does not
shift.
D)
quantity demanded of labor decreases, but the demand for labor curve does not
shift.
Page 15
70.
Phil’s Copy Studio pays its workers $60 per day and sells poster-size copies for $10 per
print. If the market wage rises to $70, then the:
A)
demand for labor increases.
B)
demand for labor decreases.
C)
quantity demanded of labor increases, but the demand for labor curve does not
shift.
D)
quantity demanded of labor decreases, but the demand for labor curve does not
shift.
71.
Phil’s Copy Studio pays its workers $60 per day and sells poster-size copies for $10 per
print. Now suppose that, during the holiday season, the price of poster-size copies
increases to $12. What happens?
A)
The demand for labor increases.
B)
The demand for labor decreases.
C)
The quantity demanded of labor increases, but the demand for labor curve does not
shift.
D)
The quantity demanded of labor decreases, but the demand for labor curve does not
shift.
72.
The government increases the sales tax on all goods but does not change the tax on
income earned from labor. What happens?
A)
The quantity of labor demanded decreases, but the demand for labor does not shift.
B)
The demand for labor decreases.
C)
The supply of labor increases.
D)
There is no change in the labor market.
73.
Over the past several years, the demand for phone operators has fallen dramatically.
Which factor would account for this development?
A)
an increase in the number of automated answering services
B)
a decrease in the quality of the technology associated with phone equipment
C)
an increase in the supply of phone operators
D)
higher prices for long-distance service
Page 16
74.
Labor with a particular skill level and training is used in only two industries: grape
cultivation and cranberry cultivation. Which occurrence is likely to cause an increase in
the demand for this type of labor?
A)
improved technology that leads to more efficient machines for grape picking
B)
publication of a report asserting that drinking two glasses of grape or cranberry
juice every day improves digestion and heart health
C)
a report by the USDA that an increasing proportion of grapes are contaminated
with unacceptable pesticides
D)
a decrease in the acreage of cranberry bogs
75.
A factor demand curve will shift because:
A)
of a change in the price of the good the factor produces.
B)
the elasticity of demand for the final product is high.
C)
of a change in the proportion of the factor’s cost relative to total cost.
D)
the slope of the MP curve is negative.
76.
There will be an increase in factor demand because of a(n) _____ in the price of the
_____.
A)
increase; factor
B)
increase; good the factor produces
C)
decrease; factor
D)
decrease; good the factor produces
77.
A factor demand curve will shift to the left because of a(n) _____ in the price of the
_____.
A)
increase; factor
B)
increase; good the factor produces
C)
decrease; factor
D)
decrease; good the factor produces
78.
An increase in the demand for autoworkers may come about because of a(n):
A)
decrease in the price of cars.
B)
decrease in the productivity of autoworkers.
C)
decrease in the supply of other factors that autoworkers use in production.
D)
increase in the price of cars.
Page 17
79.
An increase in the demand for autoworkers would NOT come about because of a(n):
A)
increase in the price of cars.
B)
decrease in the market wage rate.
C)
increase in the productivity of autoworkers.
D)
increase in the supply of other factors that autoworkers use in production.
80.
A decrease in the demand for pastry chefs may come about because of an increase in
the:
A)
concern for healthy living.
B)
market wage rate for pastry chefs.
C)
productivity of pastry chefs.
D)
supply of other factors that pastry chefs use.
81.
An increase in the demand for construction workers may come about because of a(n):
A)
increase in the demand for new housing.
B)
decrease in the market wage rate for construction workers.
C)
decrease in the productivity of construction workers.
D)
decrease in the supply of other factors that construction workers use.
82.
A shift in demand for a given factor of production will not occur if:
A)
the price of that factor falls.
B)
the productivity of that factor increases.
C)
the productivity of that factor decreases.
D)
there is a decrease in the price of a substitute factor.
83.
A firm’s demand curve for labor will shift because of:
A)
a decrease in the wage rate.
B)
an increase in the wage rate.
C)
changes in preferences and the cultural norms that define how much we work.
D)
a change in the product’s price.
Page 18
Use the following to answer questions 84-87:
84.
(Ref 38-1 Table: Total Product of Labor at Debbie’s Bakery) Use Table 38-1: Total
Product of Labor at Debbie’s Bakery. Debbie can sell cakes at $10 each. What is the
value of the marginal product for the fourth worker?
A)
5 cakes
B)
$50
C)
$210
D)
21 cakes
85.
(Ref 38-1 Table: Total Product of Labor at Debbie’s Bakery) Use Table 38-1: Total
Product of Labor at Debbie’s Bakery. Debbie can sell cakes at $10 each. If Debbie must
pay each worker $40 per day, how many workers will she hire to maximize profit?
A)
3
B)
4
C)
5
D)
6
86.
(Ref 38-1 Table: Total Product of Labor at Debbie’s Bakery) Use Table 38-1: Total
Product of Labor at Debbie’s Bakery. Debbie can sell cakes at $8 each. Debbie must pay
each worker $45 per day. How many workers will she hire to maximize profit?
A)
2
B)
3
C)
4
D)
5
Page 19
87.
(Ref 38-1 Table: Total Product of Labor at Debbie’s Bakery) Use Table 38-1: Total
Product of Labor at Debbie’s Bakery. Debbie can sell cakes at $10 each. Debbie must
pay each worker $30 per day. Now suppose the government imposes a minimum wage
law that all bakeries must pay no less than $50 per day. Debbie _____ employment from
_____ workers to _____ worker(s).
A)
reduces; 6; 1
B)
reduces; 6; 5
C)
reduces; 6; 4
D)
increases; 1; 4
Use the following to answer questions 88-92:
88.
(Ref 38-2 Table: Workers and Corn Output) Use Table 38-2: Workers and Corn Output.
Laura is a price-taking farmer who produces corn. Assume that the wage rate for
workers is $130 and the price per bushel of corn is $10. Suppose that Laura is
employing 2 workers. If she adds the third worker, her profits will:
A)
increase by $79.
B)
decrease by $51.
C)
decrease by $19.
D)
increase by $80.
89.
(Ref 38-2 Table: Workers and Corn Output) Use Table 38-2: Workers and Corn Output.
Laura is a price-taking farmer who produces corn. Assume that the wage rate for
workers is $125 and the price per bushel of corn is $10. To maximize profits, Laura
should employ _____ workers.
A)
2
B)
3
C)
4
D)
6
Page 20
90.
(Ref 38-2 Table: Workers and Corn Output) Use Table 38-2: Workers and Corn Output.
Laura is a price-taking farmer who produces corn. Assume that the wage rate for
workers is $125 and the price per bushel of corn is $10. Suppose that Laura is
employing 7 workers. If she reduces employment to 6 workers, her profits will:
A)
increase by $20.
B)
decrease by $970.
C)
increase by $105.
D)
increase by $90.
91.
(Ref 38-2 Table: Workers and Corn Output) Use Table 38-2: Workers and Corn Output.
Laura is a price-taking farmer who produces corn. Assume that the wage rate for
workers is $250 and the price per bushel of corn is $20. Laura should hire _____
workers to maximize profits.
A)
1
B)
2
C)
4
D)
7
92.
(Ref 38-2 Table: Workers and Corn Output) Use Table 38-2: Workers and Corn Output.
Laura is a price-taking farmer who produces corn. Assume that the wage rate for
workers is $130 and the price per bushel of corn is $10. Suppose that Laura acquires
more land and as a result the output that can be produced by any given number of
workers doubles. Laura should hire _____ workers to maximize profits.
A)
4
B)
5
C)
6
D)
7
Page 21
Use the following to answer questions 93-96:
93.
(Ref 38-3 Table: Employment and Output) Use Table 38-3: Employment and Output. In
the table, if the price of a bushel of wheat is $10, then the value of the marginal product
of the third worker is:
A)
$15.
B)
$150.
C)
$170.
D)
$510.
94.
(Ref 38-3 Table: Employment and Output) Use Table 38-3: Employment and Output. In
the table, if the price of a bushel of wheat is $10, then the value of the marginal product
of the fifth worker is:
A)
$11.
B)
$110.
C)
$90.
D)
$750.
Page 22
95.
(Ref 38-3 Table: Employment and Output) Use Table 38-3: Employment and Output. In
the table, if the price of a bushel of wheat is $5 and the price of labor (wage) is $40, then
the profit-maximizing quantity of labor is:
A)
1.
B)
3.
C)
6.
D)
8.
96.
(Ref 38-3 Table: Employment and Output) Use Table 38-3: Employment and Output. In
the table, if the price of a bushel of wheat is $10 and the price of labor (wage) is $120,
then the profit-maximizing quantity of labor is:
A)
1.
B)
3.
C)
4.
D)
6.
Use the following to answer questions 97-100:
Figure: The Value of the Marginal Product Curve
97.
(Ref 38-4 Figure: The Value of the Marginal Product Curve) Use Figure 38-4: The
Value of the Marginal Product Curve. In the figure, if the market wage rate increases,
then the:
A)
VMPL curve will shift to the right.
B)
profit-maximizing quantity of labor will increase.
C)
VMPL curve will shift to the left.
D)
profit-maximizing quantity of labor will decrease.
Page 23
98.
(Ref 38-4 Figure: The Value of the Marginal Product Curve) Use Figure 38-4: The
Value of the Marginal Product Curve. In the figure, the VMPL curve will shift to the
right if:
A)
the wage rate increases.
B)
a technological advance makes labor more productive.
C)
the price of the good that the labor produces decreases.
D)
the wage rate decreases.
99.
(Ref 38-4 Figure: The Value of the Marginal Product Curve) Use Figure 38-4: The
Value of the Marginal Product Curve. In the figure, if a technological advance makes
labor more productive and everything else stays the same, then the profit-maximizing
quantity of labor:
A)
will increase.
B)
will decrease.
C)
will stay the same.
D)
cannot be determined.
100.
(Ref 38-4 Figure: The Value of the Marginal Product Curve) Use Figure 38-4: The
Value of the Marginal Product Curve. In the figure, if the price of the good increases
and everything else stays the same, then the profit-maximizing quantity of labor:
A)
will increase.
B)
will decrease.
C)
will stay the same.
D)
cannot be determined.
Use the following to answer questions 101-111:
Page 24
101.
(Ref 38-5 Table: Value of the Marginal Product of Labor and Demand) Use Table 38-5:
Value of the Marginal Product of Labor and Demand. In the table, the total product of
labor is shown for the hourly production of power cords. Assume that the market for
power cords is perfectly competitive. If the price of a power cord is $2, the value of the
marginal product for the fifth worker is:
A)
$0.
B)
$20.
C)
$40.
D)
$60.
102.
(Ref 38-5 Table: Value of the Marginal Product of Labor and Demand) Use Table 38-5:
Value of the Marginal Product of Labor and Demand. In the table, the total product of
labor is shown for the hourly production of power cords. Assume that the market for
power cords is perfectly competitive. If the price of a power cord is $2, the value of the
marginal product for the third worker is:
A)
$2.
B)
$10.
C)
$60.
D)
$80.
103.
(Ref 38-5 Table: Value of the Marginal Product of Labor and Demand) Use Table 38-5:
Value of the Marginal Product of Labor and Demand. In the table, the total product of
labor is shown for the hourly production of power cords. Assume that the market for
power cords is perfectly competitive. If the price of a power cord is $2 and the market
wage rate is $20 per hour, the profit-maximizing quantity of labor is _____ workers.
A)
2
B)
4
C)
6
D)
8
104.
(Ref 38-5 Table: Value of the Marginal Product of Labor and Demand) Use Table 38-5:
Value of the Marginal Product of Labor and Demand. In the table, the total product of
labor is shown for the hourly production of power cords. Assume that the market for
power cords is perfectly competitive. If the price of a power cord is $2 and the market
wage rate is $60 per hour, the profit-maximizing quantity of labor is _____ workers.
A)
0
B)
2
C)
4
D)
6
Page 25
105.
(Ref 38-5 Table: Value of the Marginal Product of Labor and Demand) Use Table 38-5:
Value of the Marginal Product of Labor and Demand. In the table, the total product of
labor is shown for the hourly production of power cords. Assume that the market for
power cords is perfectly competitive. If the price of a power cord is $2 and the market
wage rate is $100 per hour, the profit-maximizing quantity of labor is _____ workers.
A)
0
B)
2
C)
4
D)
6
106.
(Ref 38-5 Table: Value of the Marginal Product of Labor and Demand) Use Table 38-5:
Value of the Marginal Product of Labor and Demand. In the table, the total product of
labor is shown for the hourly production of power cords. Assume that the market for
power cords is perfectly competitive. If the price of a power cord is $4 and the market
wage rate is $80 per hour, the profit-maximizing quantity of labor is _____ worker(s).
A)
1
B)
3
C)
5
D)
7
107.
(Ref 38-5 Table: Value of the Marginal Product of Labor and Demand) Use Table 38-5:
Value of the Marginal Product of Labor and Demand. In the table, the total product of
labor is shown for the hourly production of power cords. Assume that the market for
power cords is perfectly competitive. If the price of a power cord is $4 and the market
wage rate is $120 per hour, the profit-maximizing quantity of labor is _____ workers.
A)
0
B)
2
C)
3
D)
4
108.
(Ref 38-5 Table: Value of the Marginal Product of Labor and Demand) Use Table 38-5:
Value of the Marginal Product of Labor and Demand. In the table, the total product of
labor is shown for the hourly production of power cords. Assume that the market for
power cords is perfectly competitive. The price of a power cord is $2, the market wage
rate is $40 per hour, and 8 workers are hired. Profit can be maximized by hiring _____
worker(s).
A)
1 more
B)
2 more
C)
1 fewer
D)
3 fewer
Page 26
109.
(Ref 38-5 Table: Value of the Marginal Product of Labor and Demand) Use Table 38-5:
Value of the Marginal Product of Labor and Demand. In the table, the total product of
labor is shown for the hourly production of power cords. Assume that the market for
power cords is perfectly competitive. The price of a power cord is $2, the market wage
rate is $40 per hour, and 4 workers are hired. Profit can be maximized by hiring _____
worker(s).
A)
1 more
B)
2 more
C)
1 fewer
D)
2 fewer
110.
(Ref 38-5 Table: Value of the Marginal Product of Labor and Demand) Use Table 38-5:
Value of the Marginal Product of Labor and Demand. In the table, the total product of
labor is shown for the hourly production of power cords. Assume that the market for
power cords is perfectly competitive. The price of a power cord is $2, the market wage
rate is $20 per hour, and 8 workers are hired. Profit can be maximized by hiring _____
worker(s).
A)
1 more
B)
2 more
C)
1 fewer
D)
2 fewer
111.
(Ref 38-5 Table: Value of the Marginal Product of Labor and Demand) Use Table 38-5:
Value of the Marginal Product of Labor and Demand. In the table, the total product of
labor is shown for the hourly production of power cords. Assume that the market for
power cords is perfectly competitive. If the price of a power cord is $2 and the wage rate
is $90 per hour, the profit-maximizing quantity of labor is _____ workers.
A)
0
B)
2
C)
4
D)
6
Page 27
Use the following to answer questions 112-124:
Figure: The Demand for Bricklayers
112.
(Ref 38-6 Figure: The Demand for Bricklayers) Use Figure 38-6: The Demand for
Bricklayers. If the equilibrium market wage for bricklayers is $100 per day, _____
bricklayers will be hired by this masonry firm.
A)
4
B)
5
C)
6
D)
There is insufficient information to make this decision.
113.
(Ref 38-6 Figure: The Demand for Bricklayers) Use Figure 38-6: The Demand for
Bricklayers. The equilibrium market wage for bricklayers is determined by:
A)
the firm hiring the bricklayers.
B)
demand and supply in the market for bricklayers.
C)
the government.
D)
where VMPLbricklayers = MPbricklayers * P of output.
Page 28
114.
(Ref 38-6 Figure: The Demand for Bricklayers) Use Figure 38-6: The Demand for
Bricklayers. The equilibrium market wage for bricklayers is $100. For a
profit-maximizing firm at the equilibrium level of output, the VMPLbricklayers:
A)
is $200.
B)
is equal to the market wage rate.
C)
is irrelevant since the firm is a price taker.
D)
cannot be determined from the information provided.
115.
(Ref 38-6 Figure: The Demand for Bricklayers) Use Figure 38-6: The Demand for
Bricklayers. The equilibrium market wage for bricklayers is $100 a day, but a minimum
wage of $130 a day for bricklayers is set by the government. As a result:
A)
6 workers will now be hired by the firm.
B)
three workers who would have been employed at the previous $100 market wage
are now unemployed.
C)
all bricklayers are better off.
D)
construction firms will shut down.
116.
(Ref 38-6 Figure: The Demand for Bricklayers) Use Figure 38-6: The Demand for
Bricklayers. Which statement is true?
A)
Bricklayers should be hired whenever the value of the marginal product of
bricklayers is greater than or equal to the market wage rate of bricklayers.
B)
The profit-maximizing condition for firms hiring bricklayers is where
VMPLbricklayers is less than the market wage rate.
C)
The profit-maximizing condition for firms hiring bricklayers is where MPbricklayers
equals the market wage rate.
D)
Bricklayers should be hired whenever the market wage rate of bricklayers is greater
than the value of the marginal product of bricklayers.
117.
(Ref 38-6 Figure: The Demand for Bricklayers) Use Figure 38-6: The Demand for
Bricklayers. If the price for bricks laid in the wall is $0.10 a brick, the marginal product
of the second bricklayer is _____ bricks.
A)
1,500
B)
1,400
C)
1,300
D)
1,200
Page 29
118.
(Ref 38-6 Figure: The Demand for Bricklayers) Use Figure 38-6: The Demand for
Bricklayers. If the price for bricks laid in the wall is $0.10 a brick, the total production
of bricks by the first three bricklayers is _____ bricks.
A)
1,500
B)
2,900
C)
4,200
D)
5,400
119.
(Ref 38-6 Figure: The Demand for Bricklayers) Use Figure 38-6: The Demand for
Bricklayers. If the equilibrium market wage rate for bricklayers rises from $80 to $100,
the _____ bricklayers will _____.
A)
demand for; rise
B)
quantity demanded of; rise
C)
demand for; fall
D)
quantity demanded of; fall
120.
(Ref 38-6 Figure: The Demand for Bricklayers) Use Figure 38-6: The Demand for
Bricklayers. If the equilibrium market wage for bricklayers falls from $110 to $100, the
_____ bricklayers will _____.
A)
demand for; rise
B)
quantity demanded of; rise
C)
demand for; fall
D)
quantity demanded of; fall
121.
(Ref 38-6 Figure: The Demand for Bricklayers) Use Figure 38-6: The Demand for
Bricklayers. If there is an increase in technology that increases the productivity of
bricklayers, then the value of the marginal product of the sixth bricklayer will be _____
than _____.
A)
less; $80
B)
greater; $100
C)
less; $60
D)
greater; $110
122.
(Ref 38-6 Figure: The Demand for Bricklayers) Use Figure 38-6: The Demand for
Bricklayers. If a shortage in the market for mortar lowers bricklayers’ productivity, then
the value of the marginal product of the eighth bricklayer will be:
A)
less than $80.
B)
greater than $100.
C)
equal to $100.
D)
greater than $80.
Page 30
123.
(Ref 38-6 Figure: The Demand for Bricklayers) Use Figure 38-6: The Demand for
Bricklayers. If the equilibrium market wage for bricklayers is $80 per day, then this
masonry firm will hire _____ bricklayers.
A)
4
B)
6
C)
5
D)
8
124.
(Ref 38-6 Figure: The Demand for Bricklayers) Use Figure 38-6: The Demand for
Bricklayers. The equilibrium market wage for bricklayers is $100 a day, but there is a
new minimum wage of $120. Therefore:
A)
3 workers who otherwise would have been employed by this firm are now
unemployed.
B)
4 workers will now be hired by this firm.
C)
all bricklayers are better off.
D)
this firm will shut down.
125.
An input differs from a factor of production in that the former gets used up in
production, while the latter is an enduring source of income for its owner.
A)
True
B)
False
126.
Capital, the factor of production, includes physical capital (such as buildings and
machines), human capital (improvement in labor by education and knowledge), and
financial capital (such as stock market investments).
A)
True
B)
False
127.
The importance of human capital has been increased by technological progress.
A)
True
B)
False
128.
Approximately 71% of income generated in the United States goes to corporate profit.
A)
True
B)
False
Page 31
129.
Suppose that the factor market for computer engineers is competitive in India and the
United States, but Indian engineers earn one-fifth of what American engineers earn.
This means that engineers in India are price takers, but engineers in America are not.
A)
True
B)
False
130.
A profit-maximizing producer employs each factor of production up to the point at
which the value of the marginal product of the last unit of the factor employed is equal
to the price per unit of output.
A)
True
B)
False
131.
Assume that perfect competition exists in output and factor markets. The P = MC rule
for profit maximization implies the same level of labor use that would be implied by
using the VMPL = W rule.
A)
True
B)
False
132.
Your boss is trying to decide whether to buy out a rival company and asks for your
advice. The boss says that she will buy the rival if there is evidence that the rival is
operating inefficiently. (Your company will then improve its efficiency and increase
profits.) She will not buy the rival if there is evidence that the rival is already operating
efficiently. Your boss gives you the following data on the rival’s operations: The
average product of labor is 4, the marginal product of the last worker hired is 10, the
wage is $20, and the price of output is $5. Based on this information, you should tell
your boss to buy the rival.
A)
True
B)
False
133.
If a perfectly competitive firm chooses its level of output so that price equals marginal
revenue, the value of the marginal product of labor will equal the wage rate.
A)
True
B)
False
134.
If the demand for orange juice increases, the derived demand for orange grove workers
will decrease.
A)
True
B)
False
Page 32
135.
Although improved technology can either increase or decrease the demand for a factor
of production, the usual effect of technological progress is to reduce demand for labor,
holding everything else constant.
A)
True
B)
False
136.
(Table: Production Function for Shaheer’s Framing Shop) Use Table: Production
Function for Shaheer’s Framing Shop. Shaheer runs a shop that custom-frames pictures
for his customers. The table shows his daily production function. He can hire a worker
at a daily competitive wage of $60, and he sells a custom frame at a competitive price of
$10.
I. Calculate the marginal product of labor for each worker in the first empty column.
II. Calculate the value of the marginal product of labor for each worker in the second
empty column.
137.
The corn-based ethanol boom has dramatically increased the price of farm acreage.
Using the concept of derived demand, explain how this happened. What is the role of
the elasticity of supply of land in the increased price for land?
Page 33
138.
(Table: Framing Shop Production Function) Use Framing Shop Production Function.
Shaheer runs a custom picture-framing shop. The table shows his daily production
function. He can hire a worker at a daily competitive wage of $70, and he sells a custom
frame at a competitive price of $10.
I. Complete the table by calculating the value of the marginal product of labor (VMPL)
for each worker.
II. How many workers would Shaheer hire to maximize his profit?
139.
(Table: Framing Shop Employment and Production) Use Framing Shop Employment
and Production. Shaheer runs a custom picture-framing shop. The table shows his daily
production function. He can hire a worker at a daily competitive wage of $70, and he
sells a custom frame at a competitive price of $10.
I. How many workers should Shaheer hire to maximize his profit?
II. Suppose Shaheer is able to employ more sophisticated tools, which allow his workers
to be twice as productive.
Page 34
140.
When a person becomes better educated and is able to produce a better product, the
person’s education is an improvement in:
A)
human capital.
B)
physical capital.
C)
land.
D)
labor.
141.
When a person receives more education, his or her _____ has increased. When a firm
buys a new copy machine, it has purchased _____.
A)
human capital; physical capital
B)
labor; capital labor
C)
labor; capital
D)
human capital; land
142.
Alex’s boss notices that, with each adult education course Alex takes, he becomes a
more knowledgeable and efficient worker. This example illustrates:
A)
human capital development.
B)
derived demand.
C)
value of marginal product.
D)
income effects.
143.
Factors of production are different from inputs in that factors of production:
A)
can be used over and over again, but inputs cannot.
B)
can be used only once, whereas an input can be used over and over again.
C)
refer only to labor, while inputs refer to machinery.
D)
encompass only land and other natural factors, while inputs are ingredients.
144.
Derived demand for a factor of production means that:
A)
people demand factors just as they do goods.
B)
the demand for factors depends on what the factor can produce.
C)
the market derives a demand for factors regardless of what they produce.
D)
suppliers determine what will be produced.
145.
The factor distribution of income in the United States reflects that:
A)
land, labor, and capital are equally distributed.
B)
most people receive their income based on their labor contribution.
C)
most people receive their income based on their capital distribution.
D)
land provides most income to the population.
Page 35
146.
In the United States, payments to labor account for roughly:
A)
70% of total income, a share that has not fluctuated much in the past 30 years.
B)
50% of total income, but the returns to land have been increasing.
C)
30% of total income, and this number is falling.
D)
90% of total income and can be broken down into human capital and physical
capital.
147.
Firms will continue to hire workers as long as:
A)
they make a profit.
B)
the value of the marginal product is greater than the marginal cost of hiring labor.
C)
the wage is below the product price.
D)
there are no diminishing returns.
148.
Suppose that a firm sells a good for a perfectly competitive price of $5. The equilibrium
wage rate is $10. The first worker it hires produces five units. Two workers produce a
total of nine units. If it hires two workers, the value of marginal product for the second
worker is:
A)
$5.
B)
$45.
C)
$20.
D)
$10.
149.
Suppose that a firm sells a good for a perfectly competitive price of $5. The equilibrium
wage rate is $10. The first worker it hires produces five units. Two workers produce a
total of nine units. Given this information, the firm will:
A)
hire the first worker only.
B)
hire both the first and second workers.
C)
not hire either worker.
D)
hire only the second worker.
150.
The firm’s value of the marginal product of labor curve:
A)
is the firm’s demand curve for labor.
B)
is the industry’s demand curve for labor.
C)
is the same as the marginal cost curve for labor.
D)
slopes upward.
Page 36
151.
The firm’s value of marginal product curve slopes downward:
A)
only if the firm is a perfect competitor in the product market.
B)
because of diminishing returns.
C)
only if the firm is a perfect competitor in the labor market.
D)
only if the firm is a perfect competitor in both the labor and product markets.
152.
Although horses were once a very important factor of production, the development of
automobiles and other machinery reduced the demand for their use. This example
illustrates:
A)
technological progress shifting the demand for horses to the left.
B)
higher marginal costs for horses shifting demand for horses to the right.
C)
technological progress shifting the demand for horses to the right.
D)
higher marginal costs for horses having no impact on the demand for horses.
153.
(Scenario: The Decision to Hire Labor) Use Scenario: The Decision to Hire Labor.
What is the value of the marginal product of the third worker to this firm?
Scenario: The Decision to Hire Labor
Assume that both the product market and the labor market are perfectly competitive.
The price of this firm’s product is $5. The firm’s total product with respect to labor is
given in the table that follows.
A)
$5
B)
$25
C)
$18
D)
$10
Page 37
154.
(Scenario: The Decision to Hire Labor) Use Scenario: The Decision to Hire Labor. The
marginal product of the fourth worker is:
Scenario: The Decision to Hire Labor
Assume that both the product market and the labor market are perfectly competitive.
The price of this firm’s product is $5. The firm’s total product with respect to labor is
given in the table that follows.
A)
7.
B)
21.
C)
3.
D)
15.
Page 38
155.
(Scenario: The Decision to Hire Labor) Use Scenario: The Decision to Hire Labor. If
this profit-maximizing firm hires two workers, what is a possible equilibrium wage rate
in the labor market?
Scenario: The Decision to Hire Labor
Assume that both the product market and the labor market are perfectly competitive.
The price of this firm’s product is $5. The firm’s total product with respect to labor is
given in the table that follows.
A)
$30
B)
$5
C)
$13
D)
$6
Page 39
156.
(Scenario: The Decision to Hire Labor) Use Scenario: The Decision to Hire Labor. How
many workers will this perfectly competitive, profit-maximizing firm choose to hire if
the equilibrium wage is $30?
Scenario: The Decision to Hire Labor
Assume that both the product market and the labor market are perfectly competitive.
The price of this firm’s product is $5. The firm’s total product with respect to labor is
given in the table that follows.
A)
1
B)
2
C)
3
D)
4
Page 40
157.
(Scenario: The Decision to Hire Labor) Use Scenario: The Decision to Hire Labor.
Holding everything else constant, if the demand for this firm’s product decreases:
Scenario: The Decision to Hire Labor
Assume that both the product market and the labor market are perfectly competitive.
The price of this firm’s product is $5. The firm’s total product with respect to labor is
given in the table that follows.
A)
its value of marginal product curve shifts to the right, and it will hire more workers.
B)
its value of marginal product curve shifts to the left, and it will hire more workers.
C)
its value of marginal product curve shifts to the left, and it will hire fewer workers.
D)
the firm will not change its hiring, since it is a perfectly competitive firm.
Page 41
158.
(Scenario: The Decision to Hire Labor) Use Scenario: The Decision to Hire Labor. This
firm experiences diminishing marginal product after it hires the _____ worker.
Scenario: The Decision to Hire Labor
Assume that both the product market and the labor market are perfectly competitive.
The price of this firm’s product is $5. The firm’s total product with respect to labor is
given in the table that follows.
A)
first
B)
second
C)
third
D)
fourth
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Page 44
Page 45