ECON

10. The purely competitive employer of resource A will maximize the profits from A by equating the: A. price of A with the MRP of A. B. marginal productivity of A with the MRC of A. C. marginal productivity of A with the price of A. D. price of A with the MRC of A.

A

105. A firm is hiring resources X, Y, and Z in the profit-maximizing amounts when: A. MRPx/Px equals MRPy/Py equals MRPz/Pz equals 1. B. the sum of the MRPs of the three resources is at a minimum. C. the marginal revenue productivity of all three resources is the same. D. the marginal revenue product of the last dollar spent on each of the three resources is the same.

A

16. A competitive employer should hire additional labor as long as: A. the MRP exceeds the wage rate. B. the wage rate is less than MP. C. average product exceeds MP. D. MC exceeds MR.

A

45. The MRP curve for labor: A. is downsloping and shows the relationship between wage rates and the quantity of labor demanded. B. is perfectly elastic if the firm is selling its output competitively. C. is upsloping and lies above the labor supply curve. D. will shift location when the wage rate changes.

A

70. The substitution effect indicates that a profit-seeking firm will use: A. more of an input whose price has fallen and less of other inputs in producing a given output. B. more of all inputs if production costs fall. C. more of those inputs whose marginal productivity is the greatest. D. less of an input whose price has fallen and more of other inputs in producing a given output.

A

8. Marginal revenue product measures the: A. amount by which the extra production of one more worker increases a firm's total revenue. B. decline in product price that a firm must accept to sell the extra output of one more worker. C. increase in total resource cost resulting from the hire of one extra unit of a resource. D. increase in total revenue resulting from the production of one more unit of a product.

A

81. Which of the following occupations is not among the ten projected fastest growing U.S. occupations in terms of percentage increases? A. school teachers B. data communication analysts C. athletic trainers D. personal and home care aides

A

87. Suppose that a union successfully negotiated a 10 percent wage increase and the quantity of labor demanded increased by 10 percent. We can conclude that: A. the labor demand curve must have independently shifted to the right. B. labor demand is highly elastic. C. the coefficient of labor demand elasticity is less than 1. D. labor demand is unit-elastic.

A

11. The MRP curve for labor: A. intersects the firm's labor demand curve from above. B. is the firm's labor demand curve. C. lies below the firm's labor demand curve. D. lies above the firm's labor demand curve.

B

34. Marginal resource cost is: A. the increase in total resource cost associated with the production of one more unit of output. B. the increase in total resource cost associated with the hire of one more unit of the resource. C. total resource cost divided by the number of inputs employed. D. the change in total revenue associated with the employment of one more unit of the resource.

B

66. Employers will hire more units of a resource if the: A. price of the resource increases. B. productivity of the resource increases. C. price of the good being produced declines. D. price of a complementary resource rises.

B

85. When the elasticity coefficient for resource demand is greater than one, resource demand is: A. inelastic. B. elastic. C. unit-elastic. D. perfectly inelastic.

B

90. The elasticity of resource demand measures the: A. responsiveness of workers to changes in wage rates. B. responsiveness of producers to changes in resource prices. C. ratio of marginal revenue product to resource price. D. sensitivity of marginal revenue product to changes in product price.

B

114. Assuming pure competition, which of the following are equivalents? A. MRPL/PL = MRPC/PC and Px = 1/MC B. MRPL/PL = MRPC/PC and Px = AVC C. Px = MC and MRPL/PL = MRPC/PC = 1 D. Px = MC and MPL/PL = MPC/PC

C

12. Marginal product is: A. the output of the least skilled worker. B. a worker's output multiplied by the price at which each unit can be sold. C. the amount an additional worker adds to the firm's total output. D. the amount any given worker contributes to the firm's total revenue.

C

77. Suppose the productivity of labor increases and at the same time the price of capital, which is complementary to labor, increases. As a result, the demand for labor: A. will increase. B. will decrease. C. may either increase or decrease. D. will not change.

C

88. Suppose that a union successfully negotiated a 10 percent wage increase and the quantity of labor demanded decreased by 10 percent. Given a fixed labor demand curve, we can conclude that: A. the labor demand curve is upsloping. B. labor demand is elastic. C. labor demand is unit-elastic. D. the coefficient of elasticity of labor demand is less than 1.

C

1. Resource pricing is important because: A. resource prices are a major determinant of money incomes. B. resource prices allocate scarce resources among alternative uses. C. resource prices, along with resource productivity, are important to firms in minimizing their costs. D. of all of these reasons.

D

17. A firm will find it profitable to hire workers up to the point at which their: A. marginal resource cost equals their wage rate. B. wage rate equals product price. C. MP is equal to their MRP. D. marginal resource cost is equal to their MRP.

D

101. Suppose that the labor cost-total cost ratio in industry A is 82 percent while in industry B it is 21 percent. Other things equal, labor demand will be: A. more elastic in industry A than in B. B. relatively inelastic in both industry A and B. C. more elastic in industry B than in A. D. relatively elastic in both industry A and B.

A

104. Assume that an appliance manufacturer is employing variable resources X and Y in such amounts that the MRPs of the last units of X and Y employed are $100 and $60 respectively. Resource X can be hired at $50 per unit and resource Y at $20 per unit. The firm: A. should hire more of both X and Y. B. should hire more of Y and less of X. C. is producing with the least-costly combination of X and Y, but could increase its profits by employing more of X and less of Y. D. is using the least-cost combination of X and Y, but could increase its profits by employing less of both X and Y.

A

117. Assume a pencil manufacturer is employing resources C and D in such quantities that the MRPs of the last units hired are $80 and $50 respectively. The price of resource C is $90 and the price of D is $35. This firm: A. should hire less of C and more of D. B. should hire more of both C and D. C. should hire less of both C and D. D. is using the least-cost combination of C and D.

A

113. If MPa/Pa = MPb/Pb and MRPa/Pa = MRPb/Pb>1, this firm is: A. producing its output with the least costly combination of resources, but is not producing the profit-maximizing output. B. maximizing profits, but failing to minimize costs. C. neither maximizing profits nor minimizing costs. D. combining resources a and b so as to minimize costs and maximize profits.

AA

40. The labor demand curve of an imperfectly competitive seller is downsloping: A. solely because of diminishing marginal utility. B. both because of diminishing returns and the necessity to lower price to sell more output. C. solely because product price must be reduced to sell more output. D. solely because of diminishing returns.

B

102. Which of the following statements is true? Other things equal, the demand for labor will be less elastic the: A. the easier it is to substitute capital for labor. B. greater the elasticity of resource supply. C. greater the elasticity of product demand. D. smaller the ratio of labor costs to total costs.

D

89. Resource X has many close substitutes whereas resource Y has no close substitutes. Other things equal, we would expect: A. the demand for resource Y to be more elastic than the demand for resource X. B. resources X and Y to be close substitutes. C. resource X to be more expensive than resource Y. D. the demand for resource X to be more elastic than the demand for resource Y.

D

42. Other things equal, we would expect the labor demand curve of a monopolistic seller to: A. decline more rapidly than that of a purely competitive seller. B. decline less rapidly than that of a purely competitive seller. C. decline at the same rate as that of a purely competitive seller. D. be more elastic than that of a purely competitive seller.

A

51. A competitive employer is using labor in such an amount that labor's MRP is $10 and its wage rate is $8. This firm: A. should hire more labor because this will increase profits. B. should hire more labor, although this may either increase or decrease profits. C. is currently hiring the profit-maximizing amount of labor. D. is selling its product in an imperfectly competitive market.

A

60. Suppose the demand for strawberries rises sharply, resulting in an increased price of strawberries. As it relates to strawberry pickers, we could expect the: A. MRP curve to shift to the right. B. MRP curve to shift to the left. C. MRC curve to shift downward. D. MP curve to shift downward.

A

61. Which of the following will not cause a shift in the demand for resource X? A. a decline in the price of resource X B. an increase in the price of the product resource X is producing C. a decrease in the price of substitute resource Y D. an increase in the productivity of resource X

A

62. A decline in the price of resource A will: A. increase the demand for complementary resource B. B. shift the demand curve for A to the left. C. shift the demand curve for A to the right. D. reduce the demand for complementary resource B.

A

64. The labor demand curve of a firm: A. will shift to the left if the price of the product the labor is producing falls. B. is perfectly elastic if the firm is selling its product in a purely competitive market. C. reflects a direct relationship between the number of workers hired and the money wage rate. D. is the same as its marginal product curve.

A

72. Assume the price of capital doubles and, as a result, firms make no change in the relative quantities of capital and labor they employ. This implies that: A. labor is not readily substitutable for capital. B. the law of diminishing returns is not applicable. C. the firms are producing an inferior good. D. the demand for capital is highly price elastic.

A

75. A change in an input price will alter both production costs and the profit-maximizing output. Thus a decline in the price of capital will reduce production costs, increase the profit-maximizing output, and thereby increase the demand for labor. This describes the: A. output effect. B. substitution effect. C. idea of derived demand. D. law of diminishing returns.

A

76. If the price of capital declines, the consequent output effect would be: A. greater, the more elastic the demand for the product. B. greater, the less elastic the demand for the product. C. negative. D. of consequence only if capital and labor are used in fixed proportions.

A

78. Suppose a technological improvement increases the productivity of a firm's capital and, simultaneously, its workers' union negotiates a wage increase. We can predict that: A. the firm will use relatively more capital and relatively less labor. B. the firm will use relatively more labor and relatively less capital. C. inputs of capital and labor will be unchanged. D. the firm's equilibrium output will necessarily increase.

A

86. When the elasticity coefficient for resource demand is less than one, resource demand is: A. inelastic. B. elastic. C. unit-elastic. D. infinitely elastic.

A

98. Other things equal, if wage rates increase by 20 percent, the greatest decline in employment will occur when labor costs are a: A. large proportion of total costs and product demand is elastic. B. small proportion of total costs and product demand is elastic. C. large proportion of total costs and product demand is inelastic. D. small proportion of total costs and product demand is inelastic.

A

103. Assuming a competitive resource market, a firm is hiring resources in the profit-maximizing amounts when the: A. firm's total outlay on resources is minimized. B. marginal revenue product of each resource is equal to its price. C. price of each resource employed is the same. D. marginal revenue product of the last unit of each resource hired is the same.

B

13. The labor demand curve of a purely competitive seller: A. slopes downward because the elasticity of demand is always less than unity. B. slopes downward because of diminishing marginal productivity. C. is perfectly elastic at the going wage rate. D. slopes downward because of diminishing marginal utility.

B

131. The marginal productivity theory of income distribution suggests that: A. government should subsidize the most productive workers through a system of transfer payments. B. each individual should receive income based on his contribution to total output. C. resource owners should receive income based on the idea of "from each according to his ability, to each according to his wants." D. resource owners should receive income based upon their needs.

B

132. "Income receivers should be paid in accordance with the value of output each produces." This statement is consistent with the: A. monopoly theory of income distribution. B. marginal productivity theory of income distribution. C. least-cost, but not profit-maximizing, combination of inputs. D. concept of compensating wage differences.

B

133. The fact that monopoly and monopsony exist in resource markets means that: A. the marginal productivity theory of income distribution is valid. B. resource prices do not always measure contributions to output. C. the resulting income distribution is ethically correct. D. income shares do not exhaust the total output.

B

134. The marginal productivity theory of income distribution has been criticized because: A. the resulting distribution of income is likely to be too equal to maintain production incentives. B. income from inherited property is inconsistent with the theory. C. purely competitive conditions characterize most resource markets. D. it fails to recognize that resource demand is derived from product demand.

B

28. Assume that a restaurant is hiring labor in an amount such that the MRC of the last worker is $16 and her MRP is $12. On the basis of this information we can say that: A. profits will be increased by hiring additional workers. B. profits will be increased by hiring fewer workers. C. marginal revenue product must exceed average revenue product. D. the restaurant is maximizing profits.

B

3. When economists say that the demand for labor is a derived demand, they mean that it is: A. dependent on government expenditures for public goods and services. B. related to the demand for the product or service labor is producing. C. based on the desire of businesses to exploit labor by paying below equilibrium wage rates. D. based on the assumption that workers are trying to maximize their money incomes

B

33. Assuming a firm is selling its output in a purely competitive market, its resource demand curve can be determined by: A. multiplying total product by product price. B. multiplying marginal product by product price. C. dividing total revenue by marginal product. D. comparing marginal product with various possible input prices.

B

41. If a firm is selling in an imperfectly competitive product market, then: A. average product will be less than marginal product for any number of workers hired. B. the marginal products of successive workers must be sold at lower prices. C. the marginal products of successive workers can be sold at higher prices. D. the marginal products of successive workers can be sold at a constant price.

B

5. We say that the demand for labor is a derived demand because: A. labor is a necessary input in the production of every good or service. B. we demand the product that labor helps produce rather than labor service per se. C. the forces of supply and demand do not apply directly to labor markets. D. labor is hired using the MRP = MRC rule.

B

6. The demand for a resource depends primarily on: A. the supply of that resource. B. the demand for the product or service that it helps produce. C. the price of that input. D. the elasticity of supply of substitute inputs.

B

63. Assume the price of capital falls relative to the price of labor and, as a result, the demand for labor increases. Therefore: A. capital is very highly substitutable for labor. B. the output effect is greater than the substitution effect. C. the income effect is greater than the output effect. D. the substitution effect is greater than the output effect.

B

65. Which of the following will not shift the demand curve for labor? A. the use of a larger stock of capital with the labor force B. a change in the wage rate C. an increase in the price of the product which labor is helping to produce D. the adoption of a more efficient method of combining labor and capital in the production process

B

69. If two resources are highly substitutable for one another: A. a decrease in the price of one will increase unit costs of production. B. an increase in the price of one will increase the demand for the other. C. an increase in the price of one will reduce the demand for the other. D. a decrease in the price of one will increase the demand for the other.

B

7. In the United States professional football players earn much higher incomes than professional soccer players. This occurs because: A. most football players are good soccer players while the reverse is not true. B. consumers have a greater demand for football games than for soccer games. C. football and soccer games are highly substitutable products for most consumers. D. the marginal productivity of soccer players exceeds that of football players.

B

73. The demand curve for labor would shift leftward as the result of: A. an increase in the price of the product labor is producing. B. a decrease in the productivity of labor. C. an increase in the price of labor. D. a decrease in the price of capital, provided the output effect exceeds the substitution effect.

B

74. A firm will employ more of an input whose relative price has fallen and, conversely, will use less of an input whose relative price has risen. Thus a fall in the price of capital will increase the relative price of labor and thereby reduce the demand for labor. This describes the: A. output effect. B. substitution effect. C. idea of derived demand. D. law of diminishing returns.

B

79. Suppose the price of the product that labor is producing increases and simultaneously the price of capital, which is substitutable for labor, decreases. Assuming that the substitution effect is greater than the output effect, the demand for labor: A. will increase. B. will decrease. C. may either increase or decrease. D. will not change.

B

80. Suppose there is a decline in the demand for the product labor is producing. Furthermore, the price of capital, which is complementary to labor, increases. Thus the demand for labor: A. will increase. B. will decrease. C. may either increase or decrease. D. will not change.

B

84. Elasticity of resource demand is measured by the: A. absolute change in resource quantity demanded divided by the absolute change in resource price. B. percentage change in resource quantity demanded divided by the percentage change in resource price. C. absolute change in resource price divided by the absolute change in resource quantity demanded. D. percentage change in resource price divided by the percentage change in resource quantity demanded.

B

9. The marginal revenue product schedule is: A. the same whether the firm is selling in a purely competitive or imperfectly competitive market. B. the firm's resource demand schedule. C. the firm's resource supply schedule. D. upsloping.

B

96. The relationship between the elasticity of product demand and the elasticity of demand for labor employed in its production is such that, other things being equal: A. the more elastic the demand for the product, the less elastic the demand for labor. B. the more elastic the demand for the product, the more elastic the demand for labor. C. the elasticity of product demand only affects the elasticity of labor demand when the product market is purely competitive. D. if product demand is perfectly elastic, labor demand will be perfectly inelastic.

B

100. Assume that the coefficient of elasticity of product demand is 0.5 in industry A and is 3.2 in industry B. Other things equal, labor demand will be: A. more elastic in industry A than in B. B. relatively elastic in both industry A and B. C. more elastic in industry B than in A. D. relatively inelastic in both industry A and B.

C

111. Assume a firm purchases resources a and b under purely competitive conditions and combines these resources to produce X. Product X is sold in a purely competitive market. The MP of a and b are 6 and 3 respectively and the prices of a and b are $12 and $6 respectively. If equilibrium exists, the price of X will be: A. $1. B. $.50. C. $2. D. $5.

C

116. If a firm is hiring variable resources D and F in perfectly competitive input markets, it will minimize the cost of producing any level of output by employing D and F in such amounts that: A. the price of each input equals its MP. B. MPD = MPF. C. MPD/PD = MPF/PF. D. MPD/PF = MPF/PD.

C

14. Assume labor is the only variable input and that an additional input of labor increases total output from 72 to 78 units. If the product sells for $6 per unit in a purely competitive market, the MRP of this additional worker is: A. $6. B. $12. C. $36. D. $72.

C

15. If one worker can pick $30 worth of grapes and two workers together can pick $50 worth of grapes, the: A. marginal revenue product of each worker is $25. B. marginal revenue product of the first worker is $20. C. marginal revenue product of the second worker is $20. D. data given do not permit the determination of the marginal revenue product of either worker.

C

18. A profit-maximizing firm employs resources to the point where: A. MRC = MP. B. Resource price equals product price. C. MRP = MRC. D. MP = product price.

C

2. Which of the following statements best illustrates the concept of derived demand? A. As income goes up the demand for farm products will increase by a smaller relative amount. B. A decline in the price of margarine will reduce the demand for butter. C. A decline in the demand for shoes will cause the demand for leather to decline. D. When the price of gasoline goes up, the demand for motor oil will decline.

C

22. The general rule for hiring any input (say, labor) in the profit-maximizing amount is MRC = MRP. This rule takes the special form W = MRP (where W is the wage rate) when the: A. labor supply curve is upsloping. B. supply of labor is inelastic. C. firm is hiring labor under purely competitive conditions. D. firm is hiring labor under imperfectly competitive conditions.

C

38. Other things equal, the resource demand curve of an imperfectly competitive seller will: A. lie below its marginal revenue product curve. B. be subject to increasing marginal productivity. C. be less elastic than that of a purely competitive seller. D. be more elastic than that of a purely competitive seller.

C

43. The change in a firm's total revenue that results from hiring an additional worker is measured by: A. marginal product. B. marginal revenue. C. marginal revenue product. D. average revenue product.

C

46. If the wage rate increases: A. a purely competitive producer will hire less labor, but an imperfectly competitive producer will not. B. an imperfectly competitive producer will hire less labor, but a purely competitive producer will not. C. a purely competitive and an imperfectly competitive producer will both hire less labor. D. an imperfectly competitive producer may find it profitable to hire either more or less labor.

C

52. For a firm selling its product in a purely competitive market, the marginal revenue product of labor can be found by: A. adding marginal product to total product as one more unit of labor is employed. B. adding marginal revenue to total product as one more unit of labor is employed. C. multiplying marginal product by product price. D. dividing marginal product by product price.

C

71. Suppose capital and labor are used in fixed proportions so that each machine requires only one worker. If a decline in the price of capital occurs, then the demand for labor will: A. decrease solely because of the substitution effect. B. increase solely because of the substitution effect. C. increase solely because of the output effect. D. decrease solely because of the output effect.

C

95. The elasticity of resource demand will be greater the: A. smaller the portion of the product's total costs accounted for by the resource. B. less the elasticity of demand for the product it is producing. C. easier it is to substitute other resources in production. D. less the elasticity of resource supply.

C

99. If a 10 percent wage increase in a particular labor market results in a 5 percent decline in employment in that market, labor demand is: A. unit-elastic. B. elastic. C. inelastic. D. perfectly elastic.

C

110. The equation MPL/PL = MPC/PC: A. designates the MR = MC level of output. B. assumes imperfect competition in the hiring of labor and capital. C. is a sufficient condition for the maximization of profits. D. is a necessary, but not sufficient, condition for the maximization of profits.

D

112. Which of the following statements is correct? A. If the profit-maximizing rule is fulfilled, it necessarily follows that the cost-minimization rule is being fulfilled. B. The profit-maximizing and the cost-minimizing rules are such that the fulfilling of one has no bearing on the fulfilling of the other. C. If the profit-maximizing rule is fulfilled, the cost-minimization rule may or may not be fulfilled. D. If the cost-minimization rule is fulfilled, it necessarily follows that the profit-maximizing rule is being fulfilled.

D

115. Suppose a firm is hiring resources l and m under purely competitive conditions to produce product Y that sells for $2 in a purely competitive market. The prices of l and m are $10 and $4 respectively. In equilibrium the MPs of l and m, respectively, are: A. 1 and 1. B. 2 and 5. C. 10 and 4. D. 5 and 2.

D

124. The profit-maximizing and the least-cost combination of inputs are: A. the result of unrelated decisions. B. always identical. C. such that the minimization of costs always results in profit maximization. D. such that the maximization of profits always entails the least-cost combination of inputs.

D

39. The MRP curve is the resource demand curve for: A. neither the purely competitive nor the imperfectly competitive seller. B. the imperfectly competitive seller, but not the purely competitive seller. C. the purely competitive seller, but not the imperfectly competitive seller. D. both the purely competitive and imperfectly competitive seller.

D

4. The demand for airline pilots results from the demand for air travel. This fact is an example of: A. resource substitutability. B. rising marginal resource cost. C. elasticity of resource demand. D. the derived demand for labor.

D

44. The labor demand curve of a purely competitive seller: A. slopes downward because the firm must lower price to sell more output. B. slopes downward because labor productivity increases as successive workers are hired. C. is perfectly elastic because the firm is hiring an insignificant portion of the total labor supply. D. slopes downward because the marginal product of successive workers declines.

D

53. For a firm selling its product in an imperfectly competitive market, the marginal revenue product of labor can be found by: A. adding marginal product to total product as one more unit of labor is employed. B. adding marginal revenue to total product as one more unit of labor is employed. C. multiplying marginal product by product price. D. multiplying marginal product by marginal revenue.

D

67. If technology dictates that labor and capital must be used in fixed proportions, an increase in the price of capital will cause a firm to use: A. more labor as a consequence of the substitution effect. B. more labor as a consequence of the output effect. C. less labor as a consequence of the substitution effect. D. less labor as a consequence of the output effect.

D

68. If resources A and B are complementary and employed in fixed proportions: A. a change in the price of A will have no effect on the quantity of B employed. B. an increase in the price of A may either increase or decrease the demand for B. C. an increase in the price of A will increase the demand for B. D. an increase in the price of A will decrease the demand for B.

D

82. Which of the following occupations is among the ten projected most rapidly declining U.S. occupations in terms of percentage increases? A. medical assistants B. veterinarians C. college professors D. postal service workers

D

97. Other things equal, the relationship between the relative importance of a given type of labor in a firm's total costs and the elasticity of demand for that labor is such that the: A. demand for labor will be elastic only if labor accounts for less than 50 percent of total costs. B. demand for labor will be elastic only if labor accounts for 50 percent or more of total costs. C. larger the labor cost-total cost ratio, the smaller will be the elasticity of labor demand. D. larger the labor cost-total cost ratio, the greater will be the elasticity of labor demand.

D