econ 16

A major criticism of the marginal productivity theory of income distribution is that

property resources like land are unevenly distributed, which leads to income inequality.

The elasticity of resource demand measures the

responsiveness of producers to changes in resource prices.

Refer to the graph. Other things equal, an increase in the price of substitute resource would cause a

shift from D2 to D3, assuming the substitution effect exceeds the output effect.

Refer to the graph. Other things equal, an increase in the price of a complementary resource would cause a

shift from D3 to D2.

Which of the following statements is true? Other things equal, the demand for labor will be less elastic the

smaller the ratio of labor costs to total costs.

Critics of the marginal productivity theory of income distribution claim that the theory is flawed because of

the existence of imperfect competition, such as of monopoly and monopsony, in output and resource markets.

A profit-maximizing firm will use additional units of resources for production until

the marginal revenue product equals the marginal resource cost.

The change in a firm's total revenue that results from hiring an additional worker is measured by

the marginal revenue product.

Marginal resource cost is

the same as the resource price when a firm is acquiring the resource in a purely competitive market.

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

will decrease.

A cost-minimizing firm using two inputs, x and y, will employ inputs so that

MPx / Px = MPy / Py.

Refer to the table. How many units of the resource would the profit-maximizing firm use if the price of the resource was $18.00?

3

A profit-maximizing firm's daily total revenue is $155 with 3 workers, $200 with 4 workers, and $230 with 5 workers. The cost of each worker is $40 per day. The firm should

4

The table is for a purely competitive market for resources. If the product price increases from $3 to $4, then at the wage rate of $15, the firm will hire

5 workers.

If a firm is hiring inputs under purely competitive conditions, then any level of output will be produced with the least-cost combination of resources A and B when

MP of A/price of A = MP of B/price of B.

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

MPD / PD = MPF / PF.

The demand for capital by a firm is based on the demand for the product that the capital produces. This relationship is referred to as

derived demand.

Refer to the given data. Suppose that the union that provides labor to firms in this market successfully negotiates an increase in the wage rate from $10 to $12. As a result of the wage increase, firms will hire

fewer workers and the total paid out for wages will decline.

If the price of capital declines, the consequent output effect would be

greater, the more elastic the demand for the product.

The marginal productivity theory of income distribution has been criticized because

income from inherited property is inconsistent with the theory.

Other things being the same, if the demand for labor is inelastic,

increases in wage rates will result in greater payrolls.

In the marginal productivity theory of income distribution, when all markets are purely competitive, the payment for each unit of a resource is equal to its

marginal revenue product.

Suppose that the labor cost to total cost ratio in industry A is 82 percent, while in industry B it is 21 percent. Other things equal, labor demand will be

more elastic in industry A than in B.

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

output effect.

A competitive employer will hire inputs up to the point where the

price of the input equals the marginal revenue product of the input.