Micro Exam 3 Chap 11

A profit-maximizing firm employs additional units of a resource until its: a. marginal revenue product falls below the marginal resource cost. b. marginal product equals the product price. c. marginal revenue product equals the marginal resource cost. d. total product exceeds the marginal product.

A profit-maximizing firm employs additional units of a resource until the resource's marginal revenue product equals the marginal resource cost.

As the price of a resource falls, all else constant, we observe that: a. firms substitute the cheaper resource for the relatively expensive resources. b. the firm's ability to hire the relatively cheaper resources decreases. c. firms substitute the expensive resource for the relatively cheaper resources. d. the firm's ability to hire the relatively expensive resources decreases.

As the price of a resource falls, all else constant, we observe firms substitute the cheaper resource for more expensive resources and there is an increase in a firm's's ability to hire the cheaper resource.

Suppose a firm uses sugar and cocoa in the production of chocolate. If the quality of cocoa increases, then the: a. marginal productivity of sugar decreases. b. price of cocoa decreases. c. demand for sugar increases. d. marginal productivity of cocoa decreases.

Cocoa and sugar are complementary resources in the production of chocolate. If the quality of one resource increases, the marginal productivity, and the demand for the other resource increase.

derived demand

Demand that arises from the demand for the product the resource produces.

For firms selling in competitive markets, the marginal revenue product curve slopes downward only because of increasing marginal returns to the resource. a. True b. False

False

Generally, the more elastic the supply of a resource, the greater is the economic rent as a proportion of total earnings. a. True b. False

False

Marginal resource cost is the change in total cost resulting from the production of an additional unit of output, other things constant. a. True b. False

False

Resource substitutes are resources that enhance one another's productivity, a decrease in the price of one resource increases the demand for the other. a. True b. False

False

Technological improvement always enhances the productivity of resources, and results in an increase in demand for other resources. a. True b. False

False

The change in total revenue due to one unit change in labor usage is called marginal revenue. a. True b. False

False

The earnings of a resource include both opportunity cost and economic rent, if the supply curve of a resource is downward sloping. a. True b. False

False

The marginal product of labor is the increase in the price of labor resulting from a unit rise in the demand for labor. a. True b. False

False

The profit-maximizing level of employment for a price-taking firm occurs where marginal revenue product equals marginal resource cost. In contrast, the profit-maximizing level of employment for a price-setting firm occurs where marginal product equals marginal resource cost. a. True b. False

False

Which of the following is an example of a permanent difference in resource price? a. Labor wages for construction workers are different in different cities. b. Carpenters' wages are different across different furniture manufacturing firms in a country. c. University professors are paid more than the elementary school teachers. d. Accounting managers are paid more in government enterprises than in private sector firms.

Higher salaries for university professors compared to elementary school teachers is based on the difference in the inherent quality of the resource, and the time and money involved in developing the required skills. Therefore, this is an example of a permanent difference in resource price.

If a resource has a positively sloped supply curve and a negatively sloped demand curve, ________ . a. the opportunity cost of the resource is represented by the area that lies above the supply curve and below the demand curve. b. the total earnings from the resources is represented by the area that lies below the demand curve and above the supply curve c. the economic rent earned from the resource is represented by the area that lies above the supply curve and below the equilibrium price line d. the economic rent earned from the resource equals the total earning from the resource.

If a resource has a positively sloped supply curve and a negatively sloped demand curve, then the portion that lies above the supply curve and below the price line shows the amount of economic rent.

Which of the following is true of a resource that has a horizontal supply curve? a. The resource has a low opportunity cost. b. The supply of the resource is said to be perfectly inelastic. c. All earnings from that resource are economic rent. d. The resource can earn as much in its best alternative use as in its present use.

If the supply curve of a resource to a particular market is a horizontal line, the supply is said to be perfectly elastic. That resource can earn as much in its best alternative use as in its present use.

Which of the following is true of a resource that has a vertical supply curve? a. The resource has several alternative uses. b. The resource has a high opportunity cost. c. The supply of the resource is said to be perfectly elastic. d. All earnings from that resource are economic rent.

If the supply curve of a resource to a particular market is a vertical line, the supply is said to be perfectly inelastic. That resource has no alternative use. Thus, there is no opportunity cost, and all earnings are economic rent.

If the supply of a resource to a particular market is perfectly elastic, ________ . a. all earnings from that resource are economic rent b. the demand for the resource determines the equilibrium quantity of the resource c. the resource has several alternative uses d. its vertical supply curve determines the equilibrium price of the resource

If the supply of resource to a particular market is perfectly elastic, then its horizontal supply curve determines the equilibrium wage, but the demand for the resource determines the equilibrium quantity.

If the supply of a resource to a particular market is perfectly elastic, ________ . a. the resource has several alternative uses b. all earnings from that resource are economic rent c. its vertical supply curve determines the equilibrium price of the resource d. the demand for the resource determines the equilibrium quantity of the resource

If the supply of resource to a particular market is perfectly elastic, then its horizontal supply curve determines the equilibrium wage, but the demand for the resource determines the equilibrium quantity.

A profit-maximizing firm should employ a resource up to the point that: a. marginal revenue product equals marginal resource cost. b. marginal revenue product is maximized. c. marginal revenue product is zero. d. marginal revenue equals marginal cost.

It should employ a resource up to the point that marginal revenue product equals marginal resource cost.

Marginal resource cost is equal to the: a. product of total cost and marginal revenue. b. product of the per-unit cost of the resource and the total product. c. change in the total product when an additional unit of a resource is employed. d. change in the total cost when an additional unit of a resource is employed.

Marginal resource cost is equal to the change in the total cost when an additional unit of a resource is employed.

For a perfectly competitive firm, marginal revenue product is equal to: a. the product price multiplied by total output. b. the change in total product arising from a unit change in resource usage. c. the difference between marginal revenue and marginal cost. d. marginal product multiplied by product price.

Marginal revenue product is equal to marginal product multiplied by product price.

Which of the following correctly describes marginal revenue product? a. The change in total cost divided by the change in total revenue b. The change in total cost divided by the change in output c. The change in total revenue divided by the change in output d. The change in total revenue when an additional unit of a resource is hired

Marginal revenue product is the change in total revenue when an additional unit of a resource is hired.

economic rent

Portion of a resource's total earnings that exceeds its opportunity cost; earnings greater than the amount required to keep the resource in its present use.

The value of any resource depends on the value of what it produces, so resource demand is said to be: a. derived from the revenue of the product the resource produces. b. derived from the total cost of the product the resource produces. c. derived from the demand for the product the resource produces. d. derived from the supply of the product the resource produces.

Resource demand is derived from the demand for the final product.

Resource prices may differ temporarily across markets because: a. of difference in quality. b. of the time required for adjustment. c. of lack of free mobility. d. of difference in availability.

Resource prices may differ temporarily across markets because adjustment takes time.

resource complements

Resources that enhance one another's productivity; a decrease in the price of one resource increases the demand for the other.

resource substitutes

Resources that substitute in production; an increase in the price of one resource increases the demand for the other.

marginal resource cost

The change in total cost when an additional unit of a resource is hired, other things constant.

marginal revenue product

The change in total revenue when an additional unit of a resource is employed, other things constant.

Which of the following is true about the derived demand for architects? a. The derived demand for new architects has been rapidly growing in recent years due to the lack of available architectural design software that is simple, powerful, and inexpensive. b. The derived demand for new architects has been declining in recent years due to the development of powerful and cheap computers and computer-assisted architectural design software. c. The derived demand for new architects has been rapidly growing in recent years due to the development of powerful and cheap computers and computer-assisted design programs. d. The derived demand for new architects has been declining in recent years due to the development of powerful and expensive computers and lack of computer-assisted architectural design software.

The derived demand for new architects has declined due to the development of powerful and cheap computers and computer-assisted architectural design software.

A firm should hire an additional worker as long as: a. the additional revenue from employing the worker is higher than the firm's average cost of production. b. the marginal cost of employing an additional worker exceeds the marginal benefit to the firm. c. the marginal cost of employing an additional worker is positive. d. the additional revenue from employing the worker exceeds the additional cost of employing the worker.

The firm should hire an additional worker as long as the additional revenue from employing the worker exceeds the additional cost of employing the worker.

The greater the quantity and quality of complementary resources used in production, the _____ is the marginal productivity of the resource in question and the _____ is the demand for that resource. a. lower, greater b. greater, greater c. greater, lower d. lower, lower

The greater the quantity and quality of complementary resources used in production, the greater is the marginal productivity of the resource in question and the greater is the demand for that resource.

The marginal product of labor is equal to the: a. product of wage rate and total product. b. product of total revenue and marginal revenue. c. change in the total revenue when an additional unit of labor is employed. d. change in the total product when an additional unit of labor is employed.

The marginal product of labor is equal to the change in the total product by employing an additional unit of labor.

The market demand for a particular resource: a. is the demand for the resource by a firm in a particular industry. b. varies directly with the price of the resources. c. is the sum of demands for that resource in all its different uses. d. is the quantity of a resource demanded for a particular use.

The market demand for a particular resource is the sum of demands for that resource in all its different uses.

The portion of a resource's earnings greater than the amount required to keep the resource in its present use is called: a. the opportunity cost of the resource. b. economic rent. c. the price of the resource. d. income.

The portion of a resource's earnings greater than the amount required to keep the resource in its present use is called is called economic rent.

Economic rent is the portion of a resource's total earnings above its opportunity cost. a. True b. False

True

If the supply of a resource is perfectly price inelastic then its opportunity cost is zero. a. True b. False

True

The value of a resource to a firm depends on the value of the final product supplied to the market. a. True b. False

True, Firms value resources because they can transform them into marketable goods and services, not because the resource itself has consumption value to the firm.

Which of the following situations will tend to feature economic rents that are much higher than the resource's opportunity cost? a. Generic lumber used in the construction of a commercial building. b. Wheat grown by one of the thousands of wheat farmers in the U.S. and bought by Kellogg to produce breakfast cereal c. Unskilled day labor on a construction site d. An otherwise unemployable software engineer possessing unique knowledge required to resolve a particular company's latest software bug.

Wheat can earn about as much in present use as in another. Hence, there is no economic rent.

When a resource can earn as much in its best alternative use as in its present use, then the supply curve of the resource is: a. backward bending. b. downward sloping. c. upward sloping. d. horizontal to the x-axis.

When a resource can earn as much in its best alternative use as in its present use, then the supply curve of the resource is horizontal to the x-axis.

Which of the following may lead to a change in the marginal product of a resource? a. A change in the quantity of other resources used in production b. A change in the supply of the product by the firm c. A change in the price of the product d. A change in the production firm's safety regulations

a. A change in the quantity of other resources used in production

Which of the following statements reflects the nature of resource supply? a. Higher prices draw resources away from their lower-valued uses. b. Resource supply is represented by a constant-elasticity curve. c. Resource prices and supply are inversely related. d. The major suppliers of resources are the producers in the market.

a. Higher prices draw resources away from their lower-valued uses

Which of the following is true of a firm that sells its product in a competitive market? a. The marginal revenue product curve of a resource hired by the firm slopes downwards. b. The marginal revenue product curve of a resource hired by the firm is horizontal. c. The firm continues to employ more units of a resource until its marginal revenue product falls to zero. d. The firm employs more units of a resource as long as its marginal cost exceeds marginal revenue.

a. The marginal revenue product curve of a resource hired by the firm slopes downwards.

If resources are freely mobile and the nonmonetary benefits of supplying resources to alternative uses are identical, resources adjust across uses until they earn the same in different uses. a. True b. False

a. True

Suppose a firm uses labor and machines, which are perfectly substitutable, as inputs in its production process. An increase in the quantity of labor results in a(n): a. decrease in the marginal productivity of machines. b. increase in the marginal revenue product of labor. c. decrease in the total revenue for the firm. d. increase in the marginal product of labor.

a. decrease in the marginal productivity of machines.

If two resources are substitutes, an increase in the price of one resource results in a(n): a. increase in the demand for the other resource. b. increase in the marginal productivity of that resource. c. increase in the demand for that resource. d. increase in the total revenue for the firm.

a. increase in the demand for the other resource.

The market demand for a particular resource: a. is the sum of demands for that resource in all its different uses. b. is the demand for the resource by a firm in a particular industry. c. is the quantity of a resource demanded for a particular use. d. varies directly with the price of the resources.

a. is the sum of demands for that resource in all its different uses.

If a resource has a positively sloped supply curve and a negatively sloped demand curve, ________ . a. the economic rent earned from the resource is represented by the area that lies above the supply curve and below the equilibrium price line b. the opportunity cost of the resource is represented by the area that lies above the supply curve and below the demand curve. c. the economic rent earned from the resource equals the total earning from the resource. d. the total earnings from the resources is represented by the area that lies below the demand curve and above the supply curve

a. the economic rent earned from the resource is represented by the area that lies above the supply curve and below the equilibrium price line

The demand for and the supply of resources depend on: a. the willingness and ability of sellers and buyers to engage in market exchange. b. of market power of the firms in the product market. c. the willingness and ability of producers to use natural resources for production. d. a nation's endowment of natural resources.

a. the willingness and ability of sellers and buyers to engage in market exchange.

_____ can change a resource's marginal product. a. A change in the supply of the final product b. A change in the technology used in production c. A change in demand for the final product d. A change in the price of the final product

b. A change in the technology used in production

People supply their resources to the lowest-paying alternative, other things constant. a. True b. False

b. False

Which of the following is true about the market supply for resources? a. The market supply curve of a resource is derived from the value of the final goods and services produced with the resource. b. The market supply curve of a resource slopes upward because higher resource prices draw resources from lower-valued uses, and because suppliers are able to supply more of the resource at a higher price. c. The market supply curve of a resource reflects the maximum willingness-to-pay for all firms purchasing resources in the resource market. d. The market supply curve of a resource slopes downward because suppliers are able to supply less of the resource at a higher price.

b. The market supply curve of a resource slopes upward because higher resource prices draw resources from lower-valued uses, and because suppliers are able to supply more of the resource at a higher price.

The portion of resource's earnings that exceeds its opportunity cost is known as ________ . a. marginal revenue b. economic rent c. average revenue d. accounting profit

b. economic rent

Which of the following can be categorized as derived demand? a. An increase in demand for gasoline following a fall in the price of petroleum products. b. An increase in the demand for woolens in winter. c. A decline in the demand for building products following a drop in housing demand. d. A decline in the demand for labor on account of outrageous demands of trade unions.

c. A decline in the demand for building products following a drop in housing demand.