Econ 3010 Chapter 15—The Demand for Factors of Production
26. If demand for output rises, producers' surplus increases more for factors with elastic supply curves than for other factors.
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3. Increased use of machinery always hurts workers by lowering the demand for their labor.
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4. As the wage rate rises, the marginal revenue product of labor increases.
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6. When two factors are substitutes in production, an increase in the employment of one increases the marginal product of the other.
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7. When labor and capital are complements in production, a higher wage will cause a firm to use more capital in the long run.
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8. When a firm's long-run demand curve for labor is derived, the amount of capital employed is held constant.
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9. The substitution effect of a rise in the wage may increase or decrease the firm's employment of labor.
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17. An industry's demand curve tends to be more elastic than the sum of the individual firms' labor curves.
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2. A competitive firm's short-run demand for labor will rise when the price of its product rises.
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20. A monopsonist hires fewer workers and pays a lower wage than would be the case if many firms competed to hire labor.
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23. Factors that are supplied relatively inelastically earn more rents than those supplied more elastically.
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24. Both the competitive firm's demand curve for labor and the monopoly firm's demand curve for labor always slope downwards.
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5. If labor and capital are complements in production, additions to capital will increase both the total and marginal products of labor.
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11. If labor and capital are substitutes in production, then an increase in the amount of capital will
decrease the marginal product of labor.
9. If labor and capital are complements in production, then an increase in the amount of capital will
increase labor's marginal product.
37. If two factors of production are substitutes in production, then a decrease in plant size will make the total product curve
lower and steeper.
32. According to the standard competitive model, industries with increasing returns would not be profitable. However, economist Paul Romer argues that many industries may be experiencing increasing returns because
many important inputs may be nonrivalrous so that there is no limit to how much they can be used.
6. An increase in the price of labor will, in the short-run, cause a competitive firm's
marginal cost to increase, the quantity it sells to decrease and therefore reduce the quantity demand of labor.
25. When a monopsony hires an additional worker, it must pay the new worker's wages and it bids up the wages of all workers. This fact implies that the monopsony's
marginal labor cost is greater than the wage rate.
21. For a firm in the long-run, an increase in the market wage rate will cause it to reduce the employment of labor. With fewer workers, the firm's marginal revenue product for capital
shifts downward leading the firm to use less capital.
1. Marginal revenue product for labor for any type of firm is
the additional revenue that a firm earns when it employs one more unit of labor.
4. The short-run demand curve for labor for a firm in any type of market for its output coincides with
the downward sloping portion of the marginal revenue product curve.
36. A profit maximizing price taker will produce at a level where
the marginal revenue product of labor equals the wage rate.
28. A firm's revenue minus its factor payments equals
the profits or losses earned by the firm.
14. If the wage rate rises, then the firm's long-run marginal costs change, which in turn affects the firm's output level and its employment of labor. This phenomenon is known as
the scale effect.
13. If the wage rate rises, then in the long run, the firm will replace some of its labor with other factors such as capital, even if it keeps its output level constant. This phenomenon is known as
the substitution effect.
35. The phenomenon whereby labor decreases in response to a decrease in the wage rate is called
the substitution effect.
8. When a firm increases its capital usage
the total product curve can be expected to rise.
5. A profit maximizing firm in any type of market for its output would hire the quantity of labor at which
the wage rate is equal to marginal revenue product, where MRP is downward sloping.
2. Each additional unit of output produced by a unit of labor is valued at the price of the firm's output
when the firm is selling in a competitive market.
38. If the wage rate is $10 per hour and one worker can currently produce 2 units of output per hour, then the marginal cost of production is
$5
21. The profit an owner receives is equivalent to the rent received for her entrepreneurial services.
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40. A firm can sell as many units of its output as it wants for $10 a piece. The current market wage rate for its workers is $20 per hour. It follows that the firm will hire workers up to the point where the last worker hired produces how much per hour?
200 units.
19. When will the substitution effect of a wage increase cause a fall in the amount of labor employed?
Always
22. In the long run, a competitive firm that experiences decreasing returns must earn negative profits after all factor shares are paid out.
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25. When production is subject to increasing returns to scale profit will be positive.
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23. When an industry's demand curve for labor is derived from the individual firms' demand curves, what complication must be taken into account?
Changes in the price of the firms' product.
1. A firm's marginal revenue product of labor equals the marginal product of labor times the cost per unit of the labor.
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10. Derived demand for an input is the process by which individual firm's demand for labor are aggregated to get the industry demand for labor.
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11. The substitution effect on labor always decreases the amount of labor employed when the wage rate goes up.
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13. When labor is a regressive factor, a higher wage rate leads to a reduction in the firm's long-run total costs.
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14. If labor is a regressive factor, then a firm's long-run demand for labor may or may not be downward sloping.
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15. For a regressive factor the scale effect must be greater than the substitution effect.
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16. A competitive firm's demand for labor always slopes down in the short-run but may slope upwards or downwards in the long-run.
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18. A monopsonist's short-run demand curve for labor coincides with its marginal revenue product of labor curve.
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19. A monopsonist will continue to hire additional laborers as long as their marginal revenue product exceeds the wage rate.
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12. As long as labor is not a regressive factor, a higher wage will cause a firm to produce less output in the long run.
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15. When will a wage increase cause a firm to produce more output in the long run?
When labor is a regressive factor.
20. When will the scale effect of a wage increase cause a fall in the amount of labor employed?
When labor is not a regressive factor.
7. Suppose a firm hires labor in a competitive labor market. When will hiring more labor increase the firm's profit?
When the marginal revenue product of labor exceeds the wage rate.
27. Changes in the demand for an industry's output are felt most by those factors that
are inelastically supplied.
12. A monopsonist is
a buyer who faces an upward-sloping supply curve.
34. As the amount of labor used in production increases, total product
always increases.
33. In long-run equilibrium, a competitive firm can earn zero profit only if its technology exhibits
constant returns to scale.
24. To maximize its profits, a monopsonist will hire labor the quantity of labor at which marginal revenue product of labor
is downward sloping and equal to its marginal labor cost.
3. If a firm has monopoly power in the market for its output, the marginal revenue product of labor
is less for each unit of labor than for a competitive firm.
22. Consider the usual case where a higher wage rate increases firms' marginal costs. In this case, the industry's demand curve for labor
is more inelastic than the individual firms' demand curves would indicate.
10. If increased capital usage reduces the firm's short-run demand for labor, then
labor and capital are substitutes in production.
39. If a firm hires workers up to the point where the value of their marginal product equals their wage, then the firm is
maximizing profit.
26. The temporary producers' surpluses earned in the short run by factors that are inelastically supplied are called
quasi-rents.
