Labor Econ Test 2

Which of the following equalities holds when the profit-maximizing quantity of labor is employed in the short run?

MRP = MWC

Which of the following best describes the output effect of a wage increase?

The firm's marginal cost increases, the firm desires to produce less output, and therefore less labor is required.

Market labor supply curves are generally:

upward sloping, as higher wages attract workers away from their next best alternatives

"Total compensation" includes

wages and salaries and all fringe benefits.

Which one of the following best represents the principal-agent problem in the employer-employee relationship?

A worker leaves work early without permission.

Which of the following best describes the "law of diminishing marginal returns"?

As more labor is added to a fixed stock of capital, labor's marginal product must eventually fall.

Suppose that in the labor market for bricklayers: Lower wages in other crafts have attracted many newcomers to bricklaying. This predicted impact of this occurrence will cause the equilibrium wage to ___________ and cause the equilibrium quantity of labor to ______________.

Decrease; increase

A competitive firm will never choose to operate in stage(s)

I or III.

Which of the following best describes the substitution effect of a wage increase?

The cost of labor is relatively higher, causing the firm to use relatively less labor.

Value of marginal product (VMP) differs from marginal revenue product (MRP) in that

VMP measures the value society places on the next worker's output, while MRP measures the value the firm places on the next worker's output.

Which one of the following conditions is required for allocative efficiency?

Value of marginal product is the same in all alternative employments of a given type of labor.

Refer to the following diagram of a monopsonistic labor market. At the profit maximizing level of employment, the wage rate is ________ and the level of employment is ________.

W1; Q1

A perfectly competitive labor market may be characterized by all of the following except

a few firms that dominate hiring in the market.

When deriving the market demand curve for a particular type of labor, one must

account for the variation in market price as industry output expands.

The principal-agent problem arises primarily because:

agents pursue some of their own objectives that may conflict with the objectives of the principals

The short run is defined as a period in which

at least one resource is fixed.

An individual wage-fringe isoprofit line shows:

combinations of wages and fringe benefits that result in the same profit to the firm

If capital and labor are gross complements, an increase in the cost of capital will

decrease the demand for labor and drive the wage down.

Allocative inefficiency in a labor market may be caused by

either monopoly power in the product market or monopsony power in the labor market.

If job X pays more than identical job Y, then the wage rates will

equalize if information is perfect and mobility is costless.

Refer to the following diagram of a perfectly competitive labor market. At wage rate W1, there is an

excess supply of labor and the wage rate will fall.

The share of fringe benefits in total employee compensation

grew steadily from 1960 through the present.

A union might attempt to raise both the wage rate and employment of its members by:

increasing the demand for the good or service that the union produces

The hedonic theory of wages predicts that

other things equal, workers who value job safety least will tend to work for firms that have the highest cost of providing safe jobs.

The short-run labor demand curve of a competitive firm is

its marginal revenue product curve, provided marginal product is below average product.

Assuming workers and jobs are identical, if information is perfect and job search and migration are costless, then

labor will flow among employers until all wages are equal.

Which of the following is not a source of persistent compensating wage differentials?

migration from lower paying jobs to higher paying jobs

Which one of the following is generally considered a characteristic of a perfectly competitive labor market?

numerous firms hiring labor from the same pool of qualified workers

All else equal, the wage paid to steelworkers in Youngstown, Ohio will be lower if:

the cost of living in Youngstown is lower than elsewhere

There will be a shortage of labor in a particular market if:

the current wage is below the wage that would clear the market

The trend of fringe benefits as a percentage of total compensation can be partially explained by the fact that:

the firm may be able to purchase fringe benefits more cheaply than workers

Allocative efficiency is achieved when

the price of each resource equals the value of its marginal product.

A union leader told its membership that a wage increase, while resulting in some layoffs, would nonetheless increase the total incomes of its membership. The firm replied that a wage increase would reduce the total incomes of its membership. We can conclude that

the union believes that labor demand is inelastic, while the firm believes it to be elastic.

At the profit maximizing level of employment for a monopsonist:

the wage is less than marginal wage cost