Chapter 26: Factor Markets

Refer to Exhibit 26-1. What dollar values go in blanks (A) and (B), respectively? a. $4,000 and $3,000 b. $4,000 and $7,000 c. $20 and $40 d. $10, and $17.50

a. $4,000 and $3,000

If the wage rate increases from $15 to $16 and, as a result, the quantity demanded of labor decreases from 950 workers to 880 workers, then the absolute value of the elasticity of demand for labor (E1) is approximately a. 1.19 b. 0.83 c. 1.43 d. 0.74

a. 1.19

Suppose a factor price taker purchases one unit of factor X at $20. At what price would it purchase the second unit and what would marginal factor cost (MFC) equal? a. It would purchase the second unit at $20, and MFC would equal $20. b. It would purchase the second unit for less than $20 (but we don't know exactly how much this would be), and therefore there in not enough information to compute MFC. c. There is not enough information to know what it would purchase the second unit for, but MFC will equal $20. d. There is not information to answer either part of this question.

a. It would purchase the second unit at $20, and MFC would equal $20.

A profit-maximizing firm will hire a factor up to the point at which a. MRP = MFC b. MR = MC c. MR = P d. P = ATC e. VMP = MFC, if the firm is a product price searcher.

a. MRP = MFC

Suppose that the MPP of labor divided by the price of labor is less than the MPP of capital divided by the price of capital. How can costs be minimized? a. buying more capital and less labor b. buying less capital and more labor c. maintaining the current ratio of labor to capital d. buying twice as much labor than capital

a. buying more capital and less labor

Refer to exhibit 26-1. The factor X demand curve for this firm is _________. If the firm is a factor price taker, the firm's factor supply curve for X is ___________. a. downward-sloping, horizontal b. horizontal, downward-sloping c. downward-sloping, upward-sloping d. horizontal, vertical e. downward-sloping, vertical

a. downward-sloping, horizontal

The firm that is a factor price taker will face a(n) _______ curve for that factor. a. horizontal supply b. horizontal demand c. vertical supply d. vertical demand e. upward-sloping supply

a. horizontal supply

For John, the substitution effect is stronger than the income effect given an increase in the wage rate. It follows that John will ___________. a. increase his number of hours worked. b. decrease his number of hours worked. c. work the same number of hours after the rise in the wage rate as before d. There is not enough information to answer this question

a. increase his number of hours worked.

Marginal revenue product (MRP) is the additional a. revenue generated from employing one more unit of a factor b. cost incurred from employing one more unit of a factor c. output produced from employing one more unit of a factor d. revenue generated from producing one additional unit of output

a. revenue generated from employing one more unit of a factor

For a firm participating in a perfectly competitive product market, when the price of its product rises. its VMP of labor curve shifts _______, while its MRP of labor curve shifts ___________. a. rightward, equally rightward b. rightward, leftward c. leftward, equally leftward d. leftward, rightward

a. rightward, equally rightward

Suppose that Juan works 30 hours per week for $12 per hour. Then Juan's wage rate rises to $15 per hour and Juan decides that he would like to work more than 30 hours per week because he realizes that his monetary reward for working has increased. In this scenario, Juan is feeling the ______ effect. a. substitution b. income c. wage rate d. real balances

a. substitution

For a factor price taker, _________ a. the MFC curve is the factor supply curve b. the MFC curve lies below the factor supply curve c. the MFC curve lies above the factor supply curve d. it hires the quantity of a factor for which MRP > MFC. e. a and d

a. the MFC curve is the factor supply curve

The higher the elasticity of demand for the product, ____________. a. the higher the elasticity of demand for the labor that produces the product b. the lower the elasticity of demand for the labor that produces the product c. the steeper the supply curve of labor d. the greater the substitution effect is relative to the income effect e. b and d

a. the higher the elasticity of demand for the labor that produces the product

Refer to exhibit 26-1/ What dollar values go in blanks (C) and (D), respectively? a. $4,000 and $3,000 b. $2,000 and $1,000 c. $22.50 and $25 d. $60 and $80

b. $2,000 and $1,000

Refer to the exhibit. Fill in the blanks A-D, respectively. a. $40, $48, $56, $32 b. $56, $48, $40, $32 c. $32, $40, $48, $56 d. $48, $56, $32, $40 e. There is not enough information to answer this question

b. $56, $48, $40, $32

Which of the following would likely raise the wage rate in labor market ABC? a. A decrease in demand for the products produced by workers in labor market ABC b. An increase in wage rates in labor market XYZ (which is closely related to labor market ABC) c. A decrease in the MPP of workers in labor market ABC d. A decline in the nonpecuniary aspects of the jobs in labor market ABC e. b and c

b. An increase in wage rates in labor market XYZ (which is closely related to labor market ABC)

the marginal revenue product curve (MRP) sloped downward for a perfectly competitive firm. Why? a. Because MRP = MFC x MR. After some point, MR declines and therefore MRP declines. b. Because MRP = MR x MPP. After some point, MPP declines and therefore MRP declines. c. Because MRP = MR x MPP. After some point, MR will decline for a product price taker, and therefore MRP declines, d. Because price and quantity demanded are inversely related. e. none of the above.

b. Because MRP = MR x MPP. After some point, MPP declines and therefore MRP declines.

Refer to exhibit. The exhibit shows two markets in which labor of identical skills is employed. Assume that both markets are in equilibrium with Q1 and Q2 quantities of labor employed and the respective prices of $4 and $6 per unit. If labor is costlessly mobile between the markets, which of the following pairs of shifts of the respective labor supply curves is to be expected? a. S1 to S5 an S2 to S6 b. S1 to S5 and S2 to S4 c. S1 to S3 and S2 to S6 d. S1 to S3 and S2 to S4

b. S1 to S5 and S2 to S4

If a firm is a factor price taker in the labor market. it a. must raise the price of a factor in order to hire an additional factor unit. b. can buy all of the units of the factor it needs at the going factor price. c. must lower the price of a factor in order to hire an additional factor unit. d. faces a vertical supply of labor curve.

b. can buy all of the units of the factor it needs at the going factor price.

The marginal productivity theory states that a. as variable factors are added to a fixed quantity of other factors eventually the additional output produced by each additional variable factor will decrease. b. firms in perfectly competitive product and factor markets will pay factors their marginal revenue products. c. marginally productive factors will not be heavily utilized in production d. factors will be used efficiently when the additional output gained from each type of factor is exactly the same.

b. firms in perfectly competitive product and factor markets will pay factors their marginal revenue products.

Suppose that Amanda works 36 hours per week for $25 per hour. Then her wage rate rises to $35 per hour and Amanda decides that she would like to work fewer hours than 36 hours per week because she can now afford more leisure. In this scenario, the _________ effect is stronger than the ________ effect for Amanda. a. substitution, income b. income, substitution c. wage, real balances d. real balances, substitution

b. income, substitution

If for a firm MRP < MFC for factor XYZ, the the firm a. is employing the optimal level of factor XYZ b. should cut back on production by employing fewer units of factory XYZ c. should increase production by employing more units of factor XYZ d. is minimizing factor costs and therefore maximizing profits. e. a and d

b. should cut back on production by employing fewer units of factory XYZ

If the MPP of the last unit of labor hired equals 10 units and the MPP of the last unit of capital hired equals 20 units, and the price of labor is $2 per unit while the price of capital is $5 per unit, then the firm _________ in order to minimize costs. a. should employ more units of capital and fewer units of labor b. should employ more units of labor and fewer units of capital c. continue to hire the same levels of labor and capital d. should employ more units of capital and more units of labor e. should employ fewer units of capital and fewer units of labor

b. should employ more units of labor and fewer units of capital

IF the wage rate increases from $9 to $11 and, as a result, the quantity demanded for labor decreases from 110 workers to 90 workers, then the absolute value of the elasticity of demand for labor is a. 1.5 b. 0.6 c. 1.0 d. 0.9 e. 1.8

c. 1.0

Refer to Exhibit 26-1. If the firm is a factor price taker and wage is constant at $2,000, how many units of factor X should the firm employ? a. 1 unit of factor X b. 2 units of factor X c. 3 units of factor X d. 4 units of factor X

c. 3 units of factor X

Which of the following would make the demand for labor in labor market XYZ more elastic? a. The demand for the product being produced by the workers in labor market XYZ becomes more inelastic. b. There are fewer substitutes for labor available in the production of the product being produced by the workers in labor market XYZ. c. The ratio of labor cost to total cost for the product being produced by workers in labor market XYZ rises. d. a and b e. b and c

c. The ratio of labor cost to total cost for the product being produced by workers in labor market XYZ rises.

Which of the following will cause a firm's labor demand curve to shift rightward? a. a decrease in wage rates b. an increase in wage rates c. an increase in the MPP of labor d. a decrease in demand for the product labor is producing

c. an increase in the MPP of labor

If the demand for a product that labor produces is highly inelastic, a small percentage increase in price will ___________ quantity demanded of the product by a relatively __________ percentage, which, in turn, will __________ the demand for the labor that produces the product. a. decrease, small, greatly reduce b. increase, large, slightly reduce c. decrease, small, slightly reduce d. decrease, small, not change e. none of the above

c. decrease, small, slightly reduce

The demand for factors comes from the demand for the products being produced by those factors, so factor demand is termed ______ demand. a. implicit b. explicit c. derived d. conglomerate e. none of the above

c. derived

For a firm that is a factor price taker, the factor supply curve is _________, whereas the market factor supply curve is _________. a. horizontal, downward-sloping b. upward-sloping, horizontal c. horizontal, upward-sloping d. upward-sloping, downward-sloping

c. horizontal, upward-sloping

The additional cost incurred from employing one more unit of a factor is termed a. marginal cost. b. marginal physical product. c. marginal factor cost d. marginal revenue product e. value marginal product

c. marginal factor cost

Applying the least-cost rule to two factors, a firm will a. minimize costs when the MPP fo factor A equals the MPP of factor B. b. minimize costs when the MRP of factor A equals the MRP of factor B c. minimize costs when the MPP of factor A divided by the price of factor A equals the MPP of factor B divided by the price of factor B d. minimize profits at the output at which MRP = MFC e. minimize costs when the MPP of factor A divided by the price of factor B equals the MPP of factor B divided by the price of factor A

c. minimize costs when the MPP of factor A divided by the price of factor A equals the MPP of factor B divided by the price of factor B

Value marginal product (VMP) of a factor is equal to the a. price of the product divided by the marginal physical product of the factor b. change in total revenue divided by the change in the level of output produced. c. price of the product multiplied by the marginal physical product of the factor. d. marginal factor cost multiplied by the marginal physical product of the factor.

c. price of the product multiplied by the marginal physical product of the factor.

An increase in the price of a good that labor produces will end up shifting the demand curve for that labor ________ and will therefore end up ________ the wage rate paid to that labor. a. to the right, lowering b. to the left, lowering c. to the right, raising d. to the left, raising

c. to the right, raising

If the wage rate increases form $8 to $10 and, as a result, the quantity demanded of labor decreases from 500 to 450 workers, then the absolute value of the elasticity of demand for labor is a. 1.23 b. 2.33 c. 1.57 d. 0.47 e. 0.10

d. 0.47

For Firm ABC, when wage rates rise by 15 percent, the quantity demanded of labor falls by 10 percent. What is the approximate absolute value of Firm ABC's price elasticity of demand for labor (EL)? a. 0.05 b. 0.15 c. 1.50 d. 0.67

d. 0.67

For a perfectly competitive firm, __________ and therefore _____________. a. MR > P, VMP > MRP b. P > MR, VMP = MRP c. P = MC, VMP = MRP d. P = MR, VMP = MRP e. none of the above

d. P = MR, VMP = MRP

Refer to exhibit. What factor quantity should the firm purchase and what kind of firm are we dealing with here? a. Q1 + Q2; product price taker b. Q2; product price searcher c. Q2 - Q1; factor price taker d. Q2; factor price taker e. Q1; factor price searcher

d. Q2; factor price taker

Which of the following will cause a perfectly competitive firm's labor demand curve to shift leftward? a. a decrease in the wage rate b. an increase in the wage rate c. an increase in marginal physical product of labor d. a decrease in the price of the firm's product

d. a decrease in the price of the firm's product

Which of the following combinations would definitely result in an increase in the wage rate in labor market XYZ, ceteris paribus? a. an increase in the MPP of labor in labor market XYZ and a decrease in wage rates in other labor markets b. a decrease in the MPP of labor in labor market XYZ and an improvement in the nonmonetary aspects of jobs in labor market XYZ c. an increase in the MPP of labor in labor market XYZ and an improvement in the nonmonetray aspects of jobs in labor market XYZ d. an increase in the price of the good produced by labor market XYZ and a decline in the nonmonetary aspects of jobs in labor market XYZ

d. an increase in the price of the good produced by labor market XYZ and a decline in the nonmonetary aspects of jobs in labor market XYZ

An increase in wage rates a. shifts the demand for labor curve rightward. b. shift the demand for labor curve leftward. c. causes a movement down along the current labor demand curve. d. causes a movement up along the current labor demand curve.

d. causes a movement up along the current labor demand curve.

The ________ substitutes for labor, the ________ the elasticity of demand for labor, the higher the ratio of labor cost to total cost, the _________ the elasticity of demand for labor. a. fewer, higher, higher b. more, higher, lower c. more, higher, higher d. fewer, lower, higher e. more, lower, lower

d. fewer, lower, higher

As the wage rate in labor market XYZ rises, the a. demand curve for labor in labor market XYZ shifts rightward. b. supply curve of labor in labor market XYZ shifts leftward c. the quantity demanded of labor in labor market XYZ increases. d. the quantity supplied of labor in labor market XYZ increases e. a and b

d. the quantity supplied of labor in labor market XYZ increases

Marginal revenue product of factor XYZ is calculated by a. dividing the change in total revenue by the change in the quantity of factor XYZ. b. multiplying marginal physical product of factor XYZ by marginal revenue. c. dividing total revenue by the quantity of factor XYZ. d. multiplying marginal physical product of factor XYZ by average total cost. e. a and b

e. a and b

If elasticity of demand for labor is 2.22, this means that a. for every 1 percent change in the wage rate, there is 2.22 percent change in the quantity demanded of labor. b. for a 5 percent change in the wage rate, there is a 11.1 percent change in the quantity demanded of labor. c. for a 2 percent change in the wage rate, there is a 4.44 percent change in the quantity demanded of labor. d. for a 1.2 percent change in the wage rate, there is a 2.2 percent change in the quantity demanded of labor e. a, b, and c

e. a, b, and c

Which of the following is a reason why wage rates differ? a. Nonpecuniary aspects of the job differ from one job to another b. Demand conditions are not the same in all labor markets. c. Supply conditions are not the same in all labor markets. d. b and c e. a, b, and c

e. a, b, and c

Marginal revenue product is equal to ___________. a. MR x MPP b. VMP for a perfectly competitive firm c. VMP for a monopolist d. the change in total revenue divided by the change in the quantity of the factor e. a, b, and d

e. a, b, and d

For a firm MRP > MFC. It follows that the firm xc b. is minimizing factor costs c. should produce less output by decreasing the quantity of factors employed d. b and c e. none of the above

e. all of the above

Wage rates can differ between labor markets because a. the nonpecuniary aspects of different jobs are different. b. the demand for labor is not the same in all labor markets. c. labor is not mobile at zero cost. d. b and c e. all of the above

e. all of the above

The ________ the elasticity of demand for a product, the _______ the elasticity of demand for the labor demand that produces the product. a. lower, higher b. lower, lower c. higher, higher d. higher, lower e. b and c

e. b and c