Labor Market Practice Questions
If a worker can produce 20 units of output which can be sold for $4 per unit, what is the maximum wage that firm should pay to hire this worker?
$80
The demand for labor depends primarily on the additional output produced as a result of hiring and additional worker and
Additional revenue received from selling the output produced as a result of hiring an additional worker
What is a factor market?
Is market where resources used to produce final goods are traded
Demand for labor is described as derived demand?
It is derived from the demand for products that use labor in the production process
How will an increase in population affect the labor market?
It will shift the market supply curve.
What is the difference between a firm's marginal revenue and its marginal revenue product?
Marginal revenue is the change in sales revenue from selling one more unit of output while marginal revenue product is the change in total revenue from hiring one more worker.
Let MP = marginal product, P = output price, and W = wage, then the equation that represents the condition where a competitive firm would hire another worker is
P × MP > W.
What happens to the equilibrium wage and quantity of labor if output price rises?
The equilibrium wage and the equilibrium quantity of labor rise.
Consider the market for opticians. What is likely to happen to the equilibrium wage and quantity of opticians if more and more people turn to laser eye surgery instead of wearing glasses or contact lens?
The equilibrium wage and the equilibrium quantity of opticians fall.
Consider the market for pilots. What is likely to happen to the equilibrium wage and quantity of pilots if the government enforces a lower mandatory retirement age, say from age 65 to age 62?
The equilibrium wage rises and the equilibrium quantity of pilots falls.
An increase in a perfectly competitive firm's demand for labor could be caused by
a decrease in the market wage rate.
Which of the following will not cause the labor demand curve to shift to the right?
an increase in the market wage rate
All of the following will shift the labor supply curve except
an increase in the wage rate.
As more output is produced, the marginal product of labor declines
because of the law of diminishing returns.
Suppose a competitive firm pays a wage of $12 an hour and sells its product at $3 per unit. Assume that labor is the only input. If hiring another worker would increase output by five units per hour, then to maximize profits the firm should
hire the additional worker.
Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit. Assume that labor is the only input. If hiring another worker would increase output by three units per hour, then to maximize profits the firm should
not hire an additional worker.
A firm's demand curve for labor slopes downwards because
of the law of diminishing marginal returns.
Marginal revenue product can be calculated using the formula marginal product × output price
only if output price is constant.
The demand curve for labor is also
the marginal revenue product of labor curve.
A firm should hire more workers to increase its profits if
the wage rate is less than the marginal revenue product of labor.
