ECON 2201 Chapter 14

Suppose the local market for legal services has an upward sloping supply curve, PL = 150 + 0.0001QL where PL is the price of legal services and QL is the number of hours of legal services. If the equilibrium price of legal services is $250 per hour and the average number of hours that a lawyer works per year is 2,500, what is the average economic rent earned per lawyer in this market? $20,000 $10,000 $1,000,000 $50,000

$20,000

Scenario 14.1: You are the manager of a firm producing green chalk. The marginal product of labor is: MPL = 24L-1/2 Suppose that the firm is a competitor in the green chalk market. The price of green chalk is $1 per unit. Further suppose that the firm is a competitor in the labor market. The wage rate is $12.00 per hour. Given the information in Scenario 14.1, what is the marginal revenue product of labor? 12L^-1/2 24L^-1/2 0.5L^-1/2 2L^-1/2

24L^-1/2

Which of the following is NOT a factor that has contributed to declining private-sector differential between union and nonunion wages in the U.S. since 1980? Declines in the unemployment and health insurance premiums paid by union workers Globalization of the production process Improved ability of firms to substitute capital for labor in production Adoption of two-tiered wage and benefit structures by unionized firms

Declines in the unemployment and health insurance premiums paid by union workers

Suppose a labor market has perfectly inelastic supply that is composed of union and non-union workers, and both groups of workers initially earn the perfectly competitive wage. What happens to the equilibrium employment level and wage for non-union workers if the union exercises its bargaining power? Employment increases and wage declines. Both increase. Both decline. Wage increases and employment declines.

Employment increases and wage declines.

Use the following statements to answer this question: I. Under profit maximization, the quantity of labor used in production is optimal if MR = w/MPL. II. The expression MR = w/MPL implies that the revenue earned from the last unit of output produced equals the marginal cost of the last unit of output. II is true and I is false. I and II are true. I is true and II is false. I and II are false.

I and II are true.

A consumer's original utility maximizing combination of income and leisure is shown in the diagram above as point A. After a wage decrease, the consumer's utility maximizing combination changes to point C. (pic on def side) Refer to Figure 14.2. The substitution effect of the wage decrease on the amount of hours of leisure is: L2 to L0. L0 to L1. L1 to L2. L1 to L0. none of the above

L1 to L2.

In the competitive output market for good Q, the marginal revenue product for an input X can be expressed as MPX*PQ APX MRQ. MPQ MRX. MPX / TRQ.

MPX*PQ

Suppose the federal government allows labor unions to act as the sole seller in labor markets, but the government collects an annual $10,000,000 "administrative fee" from each union in this situation. Assuming this fee is not so large that it forces the unions to disband, what is the impact of this fee on the equilibrium wage and employment level in the monopolized labor market? Wages increase and employment declines. Employment increases and wages decline. Wages and employment decline. No change in wages or employment levels.

No change in wages or employment levels.

Suppose the upward sloping labor supply curve shifts leftward in a labor market with a single employer (monopsony). What happens to the marginal expenditure curve? Shifts right Remains the same Shifts left We do not have enough information to answer this question.

Shifts left

Suppose a labor market has perfectly inelastic supply that is composed of union and non-union workers, and both groups of workers initially earn the perfectly competitive wage. What happens to the equilibrium employment level and wage for union workers if the union exercises its bargaining power? Employment increases and wage declines. Both decline. Both increase. Wage increases and employment declines.

Wage increases and employment declines.

Suppose the upward sloping labor supply curve shifts leftward in a labor market with a single employer (monopsony). What happens to the equilibrium wage and level of employment in the market? Wage increases and level of employment declines. Wage and level of employment increase. Wage decreases and level of employment increases. Wage and level of employment decline.

Wage increases and level of employment declines.

In some remote communities, there was only one employer in the local labor market several years ago, but the number of firms that hired workers in the market increased over time. What is the expected change in the local labor market as the number of employers increased (ceteris paribus)? Wages and employment increase Wages increase but employment remains the same Wages remain the same but employment increases Wages and employment decline

Wages and employment increase

An increase in technology that enhances labor productivity will likely result in: a decrease in labor employment and a decrease in the wage rate. employers using less labor and more capital while the wage effect is unknown. a decrease in labor employment and an increase in the wage rate. an increase in labor employment and an increase in the wage rate. an increase in labor employment and a decrease in the wage rate.

an increase in labor employment and an increase in the wage rate

Suppose the labor market is perfectly competitive, but the output market is not. When the labor market is in equilibrium, the wage rate will: be greater than price times the marginal product of labor. equal price times the marginal product of labor. be less than price times the marginal product of labor. None of the above is necessarily correct.

be less than price times the marginal product of labor.

A firm purchases a factor of production in a competitive market. At the current purchase rate the MRP of the factor is greater than the marginal expenditure for the factor. Thus, the firm can increase profit by expanding the employment of the factor of production. can increase profit by reducing the employment of the factor of production. is now maximizing profit. should not use this factor of production because it has no potential in generating a profit.

can increase profit by expanding the employment of the factor of production.

Under what circumstances are the marginal expenditure for an input and the average expenditure always equal? Where there is a competitive seller. competitive buyer. monopoly seller. monopoly buyer.

competitive buyer.

Under an upward sloping supply curve for land, the economic rents to land ________ as the demand for land shifts rightward. increase decrease remain the same We do not have enough information to answer this question.

increase

The substitution effect of a decrease in the wage will: increase leisure only if leisure is a normal good. decrease leisure only if leisure is a normal good. decrease leisure, regardless of whether leisure is a normal or inferior good. increase leisure, regardless of whether leisure is a normal or inferior good.

increase leisure, regardless of whether leisure is a normal or inferior good.

If leisure is a normal good, then the income effect of a decrease in wage will increase the number of hours worked. decrease the number of hours worked. decrease the number of leisure hours. increase the sum of leisure plus hours worked.

increase the number of hours worked.

For a monopsony buyer of an input, the marginal expenditure curve is identical to the average expenditure curve. lies below the input demand curve. lies below the average expenditure curve. lies above the average expenditure curve.

lies above the average expenditure curve.

If the factor supply curve facing a monopolist is the market supply curve, and if the market supply curve is an upward sloping straight line, the marginal expenditure curve lies above the market supply curve. lies below the market supply curve. crosses the market supply curve at the market wage rate. is the market supply curve. either A or B is possible.

lies above the market supply curve.

If an individual's labor supply curve is backward bending, then" the substitution effect associated with a higher wage encourages more leisure. the income effect associated with a higher wage is greater than the substitution effect. the substitution effect associated with a higher wage is greater than the income effect. A and C B and C

the income effect associated with a higher wage is greater than the substitution effect.

Scenario 14.4: John's firm is a competitor in your product market and a monopsonist in the labor market. The current market price of the product that your firm produces is $2. The total product and marginal product of labor are given as: TP = 100L - 0.125L2 MP = 100 - 0.25L where L is the amount of labor employed. The supply curve for labor and the marginal expenditure curve for labor are given as follows: L = PL -5 MEL = 2L + 5 Refer to Scenario 14.4. Suppose that the price of the product rises to $5, the price of labor will decrease. will not change. will increase. will change in an indeterminate fashion.

will increase.

If only one firm in an industry could take advantage of a reduced wage and all other firms continue paying the old wage, how would one best describe the one firm's reaction to this reduced wage assuming labor is the only variable input? The marginal revenue product of labor curve would remain unchanged, and the firm would hire more labor at the lower wage. shifts to the left, and the firm hires less labor at the lower wage on the new curve. shifts to the left, and the firm hires more labor at the lower wage on the new curve. shifts to the right, and the firm hires less labor at the lower wage on the new curve. shifts to the right, and the firm hires more labor at the lower wage on the new curve.

would remain unchanged, and the firm would hire more labor at the lower wage.