chapter 11
In a perfectly competitive labor market, equilibrium wage is determined by:
the market forces of demand and supply In a perfectly competitive labor market, equilibrium wage is determined by the market forces of demand and supply. Additional Resources
One of the factors that affects the demand for inputs like labor is:
the consumer demand for the final good that the inputs are used to produce The derived demand for labor and other factors of production depends on the consumer demand for the final goods and services that the factors are used to produce.
In a _____, a firm is a wage maker and not a wage taker.
monopsony A monopsonist is a wage maker as it has market power in the labor market and can pay a worker less than his/her marginal revenue product.
If labor unions succeed in increasing the daily wage rate of workers who work in hazardous chemical factories from $22 to $33, there is likely to be:
a decrease in the quantity of labor demanded by firms. If labor unions succeed in increasing the daily wage rate of workers who work in hazardous chemical factories from $22 to $33, there will be a surplus of labor as firms will react by hiring fewer workers.
the wage rate and number of workers employed will be determined at point:
so look at the equilibrium of MFC and MRP... then the point below on the labor supply line
A monopsonist faces a labor supply curve that is:
upward sloping A monopsonist faces a labor supply curve that is upward sloping.
Assume Ajax Company employs 100 workers and its total revenue is $400,000. When Ajax Company employs 101 workers, total revenue increases to $405,000. The marginal revenue product of the 101st worker is:
5,000. The marginal revenue product is the increase in a firm's total revenue resulting from hiring an additional unit of labor or another variable resource. Therefore, the marginal revenue product of the 101st worker will be $405,000 − $400,000 = $5,000.
If the price of a substitute for wood such as plastic or metal decreases, wages of loggers will because the marginal revenue product of loggers will fall .
fall, fall If the price of metal, plastic, or other such substitute for wood decreases, then the demand for wood will decrease. Less demand for wood will lower the marginal revenue product of loggers, causing their wages to fall. This change, graphically depicted as a leftward shift of the demand curve, will lead to lower wages for loggers.
Stricter certification requirements enforced by labor unions lead to a _____. rightward shift of the labor supply curve
leftward shift of the labor supply curve Labor unions often look to limit labor supply by enforcing stricter certification requirements, shifting the labor supply curve leftward.
A profit-maximizing monopsonist will set the quantity of labor it will employ based on the equality of:
marginal revenue product and marginal factor cost. A profit-maximizing monopsonist will set the quantity of labor it will employ based on the equality of marginal revenue product and marginal factor cost.
One of the factors that affects the demand for inputs like labor is
the consumer demand for the final good that the inputs are used to produce.
The marginal revenue product of a perfectly competitive firm is:
the product of the price of the final product and the marginal product of labor.... The marginal revenue product of a perfectly competitive firm is the product of the price of the final good and the marginal product of labor.
Lorna's Lumberyard is a monopsony. According to Lorna's estimations, at a wage of $10, 100 workers would be willing to work for her. Similarly, at a wage of $12, 200 workers would be willing to work. Her marginal factor cost is:
$14. because total wage rate= wage rate* # of workers= 10*100=1,000 then 12*200=2,400 so 2,400-1,000= 1,400 then 200-100=100 so 1,400/100=14.. so the mfc= 14
Identify a suitable example that illustrates the concept of derived demand A decrease in the demand for oil causing firms to lay off workers An increase in the availability of substitute products decreasing the demand for a product A fall in the wage rate increasing the demand for labor A decrease in the price of a complementary product increasing the demand for a product
A decrease in the demand for oil causing firms to lay off workers A decrease in the demand for oil causing a decrease in the demand for workers is a suitable example that illustrates the concept of derived demand for factors of production.
Caroline sells recipe books at a bookstore in Fairlane Mall. She employs 4 workers and can sell 5 recipe books daily at a price of $15 each. If she employs 5 workers, she can sell 9 recipe books daily at the same price. She pays the workers a daily wage of $50. Which of the following is true in this scenario?
Caroline will hire the fifth worker as the marginal revenue product is higher than the wage rate. The marginal revenue product of the fifth worker is (9 x $15) - (5 x $15) = $135 - $75 = $60. This is higher than the daily wage of $50 which Caroline pays to her workers. Therefore, it will be profitable for her to employ the fifth worker as it will add more to revenue than to costs.
Which of the following is true of the marginal factor cost of a monopsony?
It is the addition to total cost resulting from a one-unit increase in the quantity of a variable factor. Marginal factor cost of a monopsony is the change in total cost arising from an additional unit of a variable factor
Identify the correct statement about the demand curve for labor.
It is the marginal revenue product curve of a firm. The demand curve for labor coincides with a firm's marginal revenue product curve as it shows the different quantities of labor that the firm is willing to hire at different wage rates.
Labor unions often force firms to hire more workers than required or impose work rules that reduce output per worker. This is referred to as _____
Labor unions often force firms to hire more workers than required or impose work rules that reduce output per worker. Such actions are referred to as featherbedding
Which of the following is true of a labor supply curve facing a monopsonist? The labor supply curve facing the firm is the same as the market supply curve. The labor supply curve is vertical. The labor supply curve facing the firm lies below the market supply curve. The labor supply curve is horizontal.
The labor supply curve facing the firm is the same as the market supply curve. The labor supply curve facing a firm is the same as the market supply curve in a monopsony because as wage rate rises, all the workers will have to be paid the same higher wage
If labor unions succeed in increasing the daily wage rate of workers who work in hazardous chemical factories from $22 to $33, there is likely to be
a decrease in the quantity of labor demanded by firms If labor unions succeed in increasing the daily wage rate of workers who work in hazardous chemical factories from $22 to $33, there will a decrease in the number of workers hired by the chemical manufacturers
The marginal product of labor declines:
as more workers are hired, all other factors remaining constant. The additional output from hiring an additional unit of labor declines as the number of workers increase, other things remaining constant. Therefore, the marginal product of labor declines as a firm hires more workers.
A firm will employ an additional unit of labor as long as the employment of labor adds more to the firm's revenue than it does to the firm's:
cost. A firm will employ additional units of labor till the point is reached where the marginal revenue product is equal to the wage rate. This implies that a firm will employ an additional unit of labor as long as the employment of labor adds more to the firm's revenue than it does to the firm's cost.
The demand for labor is a(n) _____ because it depends on the consumer demand for the final goods that are produced
derived demand The demand for labor is a derived demand because it depends on the consumer demand for the final goods that is produced.
In a perfectly competitive labor market, a firm faces a(n) _____.
horizontal labor supply curve In a perfectly competitive labor market, a firm faces a horizontal labor supply curve because each firm is a wage taker.
A decrease in the demand for good X will lead to a _____.
leftward shift of the demand curve for labor used in producing good X A decrease in the demand for good X will lead to a decrease in the demand for labor used in producing the good as labor demand is a derived demand. This will cause a leftward shift of the labor demand curve.
A monopsonist believes that hiring an additional worker would increase the company's revenue by $150 per day. We can conclude that the monopsonist pays its workers:
less than $150 per day. If an additional worker increases the company's revenue by $150 per day, the wage rate must be less than $150 per day for the monopsonist to make a profit.
In a perfectly competitive labor market, a firm will hire up to the point where the:
marginal revenue product equals the wage rate. In a perfectly competitive labor market, each firm is too small to influence the wage rate and therefore faces a horizontal labor supply curve. The equilibrium occurs at the point of intersection of the marginal revenue product curve and the supply curve. Therefore, a firm will hire up to the point where the marginal revenue product equals the wage rate
A(n) _____ is a market structure where there is a single buyer in the market
monopsony A monopsony is characterized by the presence of a single buyer in a market.
A change in immigration laws will:
shift the labor supply curve A change in immigration laws will cause changes in labor supply.
In a monopsony, as the wage rate rises, all workers must be paid the same higher wage. This causes
the marginal factor cost of a monopsonist to exceed the wage rate. A monoposonist has to pay a higher wage rate not only to each additional worker hired but also to all previously hired workers when it hires additional workers at a higher wage rate. Therefore, the marginal factor cost of a monopsonist, which is the change in change in the total cost resulting from a unit increase in the quantity of a factor, exceeds the wage rate.
Everything else remaining equal, a firm's marginal revenue product increases if:
the marginal product of labor increases. Everything else remaining the same, an increase in the marginal product of labor increases the marginal revenue product of a firm as the marginal revenue product is equal to the marginal product of labor times the price of its product.
The most profitable number of workers for any employer to hire corresponds to the quantity of output where:
the marginal revenue product equals the marginal factor cost. A firm will hire workers up to the point where the marginal revenue product equals the marginal factor cost of labor.
A monopsonist should hire more workers to increase its profit if:
the marginal revenue product exceeds the marginal factor cost. A monopsonist should hire more workers to increase its profit if the marginal revenue product exceeds the marginal factor cost
If the wage rate is fixed above the equilibrium wage rate in the labor market to meet the demands of labor unions, it is likely that:
there will be an excess supply of labor. If the wage rate is fixed above the equilibrium wage, there will be unemployed workers in the market as firms may substitute capital for labor.
the wage rate and number of workers employed will be determined at point:
where supply and mrp meet
Which of the following statements is true? A monopsonist will pay workers a higher wage and employ fewer workers than the firms in a competitive labor market. A monopsonist has a marginal factor cost curve that lies below its supply curve of labor. A monopsonist is the only employer of a factor of production. A monopsony will maximize profits at a level of output where the marginal factor cost exceeds the wage rate.
A monopsonist is the only employer of a factor of production A monopsony is a labor market in which a single firm hires labor. Therefore, a monopsony is the only employer of a factor of production.
Which of the following statements concerning the supply of labor is true? The labor supply curve is downward sloping. The wage rate has no effect on the supply of labor. The supply of labor is determined by the prevailing wage rate. The labor supply curve is upward sloping.
The labor supply curve is upward sloping The quantity of labor workers are willing to offer varies directly with the wage rate. Therefore, the labor supply curve slopes upward.
The market supply curve of labor is , but the supply curve of labor facing a single firm is . This is because any individual firm is a wage .
The market supply curve of labor is upward sloping, but the supply curve of labor facing a single firm ishorizontal. This is because any individual firm is a wagetaker. The supply curve of labor shows the different quantities of labor workers are willing to offer employers at different wage rates. The supply curve of labor is also consistent with the law of supply: There is a direct relationship between the price of labor and the quantity of labor that workers are willing to offer. The supply curve of labor is upward sloping for the market, but this is not the case for an individual firm. Because a competitive labor market assumes that each firm is too small to influence the wage rate, firms are "wage takers" and therefore pay the market-determined wage rate regardless of the quantity of labor they employ
Which of the following is true of the behavior of labor unions? Improvement in the quality of human capital is the only concern of labor unions. They often give subsidies to firms to boost production, which in turn increases the demand for labor. The demand for labor remains unchanged when workers form a union. They boost domestic demand for labor by decreasing competition from other nations.
They boost domestic demand for labor by decreasing competition from other nations Labor unions can force countries to protect domestic industries from foreign competition. They can, thereby, boost domestic demand for labor by decreasing competition from other nations.
Which of the following is true of the behavior of labor unions? The demand for labor remains unchanged when workers form a union. Improvement in the quality of human capital is the only concern of labor unions. They often give subsidies to firms to boost production, which in turn increases the demand for labor. They boost domestic demand for labor by decreasing competition from other nations.
They boost domestic demand for labor by decreasing competition from other nations. Labor unions can force countries to protect domestic industries from foreign competition. They can, thereby, boost domestic demand for labor by decreasing competition from other nations.
Workers are paid a wage _____.
below their marginal revenue product in a monopsony Workers are paid a wage below their marginal revenue product in a monopsony as a monopsonist has market power
Workers are paid a wage _____
below their marginal revenue product in a monopsony Workers are paid a wage below their marginal revenue product in a monopsony.
true or false? Summing all marginal product of labor curves, for all firms in a market, yields the market demand curve for labor
false The demand curve for labor shows the different quantities of labor employers are willing to hire at different wage rates in a given time period, all else equal. Furthermore, a profit-maximizing firm in a perfectly competitive market hires additional workers up to the point where the marginal revenue product (MRP), not simply the marginal product, equals the wage rate.
For a monopsonist, the marginal factor cost is always:
greater than the wage rate A monopsonist has to pay a higher wage rate not only to each additional worker hired but also to all previously hired workers when it hires additional workers at a higher wage rate. Therefore, the marginal factor cost, which is a change in the total cost resulting from a unit increase in the quantity of a factor, will always exceed the wage rate for a monopsonist.
A monopsonist:
hires fewer workers and pays lower wages than a firm in a perfectly competitive labor market. A monopsonist is a wage maker and can exploit labor by paying less than its marginal revenue product. In a perfectly competitive labor market, the wage rate will be equal to the marginal revenue product a firm at equilibrium. Therefore, a monopsonist will hire fewer workers and pay lower wages than a firm in a perfectly competitive labor market.
An increase in the marginal product of labor will cause a(n):
increase in labor demand. An increase in the marginal product of labor will cause an increase in labor demand and will shift the labor demand curve rightward.
A monopsonist's marginal factor cost (MFC) curve lies above its labor supply curve because the firm must:
increase the factor price to hire more workers. A monopsonist's marginal factor cost (MFC) curve lies above its labor supply curve because the firm must offer a higher wage rate to hire more workers
Labor unions often try to influence _____ by advertising and trying to convince the public to "look for the union label."
labor demand Labor unions often try to influence labor demand by advertising and trying to convince the public to "look for the union label." Effective advertising would increase the demand for a product with union-made components, and this would, in turn, increase the demand for labor
