Chapter 14 - The Demand for Resources
Answer the question on the basis of the following information. A farmer who has fixed amounts of land and capital finds that total product is 24 for the first worker hired; 32 when two workers are hired; 37 when three are hired; and 40 when four are hired. The farmer's product sells for $3 per unit and the wage rate is $13 per worker. Refer to the above information. The marginal revenue product of the second worker is: A. $24. B. $8. C. $15. D. $9.
A. $24
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. A. should hire less of C and more of D.
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. Amount by which the extra production of one more worker increases a firms total revenue.
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. Decline more rapidly than that of a purely competitive seller.
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.
A. If the profit-maximizing rule is fulfilled, it necessarily follows that the cost-minimization rule is being fulfilled.
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.
A. Intersects the firm's labor demand curve from above.
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. MRP Curve to shift to the right
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. MRPx/Px equals MRPy/Py equals MRPz/Pz equals 1.
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. Price of A with the MRP of A.
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. Should hire more labor because this will increase profits
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. a decline in the price of resource X
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. increase the demand for complementary resource B.
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. inelastic.
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. is downsloping and shows the relationships between wage rates and the quantity of labor demanded.
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. Marginal revenue product
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. labor is not readily substitutable for capital.
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. more of an input whose price has fallen and less of other inputs in producing a given output.
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. output effect.
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.
A. producing its output with the least costly combination of resources, but is not producing the profit-maximizing output.
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. should hire more of both X and Y.
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. the MRP exceeds the wage rate
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. will shift to the left if the price of the product the labor is producing falls.
Answer the question on the basis of the following information: Harry owns a barber shop and charges $6 per haircut. By hiring one barber at $10 per hour the shop can provide 24 haircuts per 8-hour day. By hiring a second barber at the same wage rate the shop can now provide a total of 42 haircuts per day. Refer to the above information. The MRP of the second barber is: A. 18 haircuts. B. $108. C. 42 haircuts. D. $126.
B. $108
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. smaller the ratio of labor costs to total costs.
Answer the question on the basis of the following information. A farmer who has fixed amounts of land and capital finds that total product is 24 for the first worker hired; 32 when two workers are hired; 37 when three are hired; and 40 when four are hired. The farmer's product sells for $3 per unit and the wage rate is $13 per worker. 44. Refer to the above information. The marginal product of the second worker is: A. 24. B. 8. C. 5. D. 1.
B. 8
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. A decrease in the productivity of labor
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. Consumers have a great demand for football games than for soccer games
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. Elastic
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. Profits will be increased by hiring fewer workers
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. Related to the demand for the product or service labor is producing.
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. Slopes downward because of diminishing marginal productivity
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. Substitution effect
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. The demand for the product or service that it helps produce.
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. The firm's resource demand schedule
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. Answer the question on the basis of the data contained in the following table. Assume that the firm is hiring labor in a purely competitive market.
B. The increase in total resource cost associated with the hire of one more unit of the resource.
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. We demand the product that labor helps produce rather than labor service per se.
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. a change in the wage rate
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. an increase in the price of one will increase the demand for the other.
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. both because of diminishing returns and the necessity to lower price to sell more output
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. marginal revenue product of each resource is equal to its price.
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. percentage change in resource quantity demanded divided by the percentage change in resource price.
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. productivity of the resource increases.
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. responsiveness of producers to changes in resource prices.
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. the more elastic the demand for the product, the more elastic the demand for labor.
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. the output effect is greater than the substitution effect.
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. $36
Answer the question on the basis of the following information: Harry owns a barber shop and charges $6 per haircut. By hiring one barber at $10 per hour the shop can provide 24 haircuts per 8-hour day. By hiring a second barber at the same wage rate the shop can now provide a total of 42 haircuts per day. Refer to the above information. The MP of the second barber is: A. $240. B. $108. C. 18 haircuts. D. 42 haircuts.
C. 18 Haircuts
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. 2
Answer the question on the basis of the following information. A farmer who has fixed amounts of land and capital finds that total product is 24 for the first worker hired; 32 when two workers are hired; 37 when three are hired; and 40 when four are hired. The farmer's product sells for $3 per unit and the wage rate is $13 per worker. Refer to the above information. How many workers should the farmer hire? A. 1 B. 2 C. 3 D. 4
C. 3
Answer the question on the basis of the following information. A farmer who has fixed amounts of land and capital finds that total product is 24 for the first worker hired; 32 when two workers are hired; 37 when three are hired; and 40 when four are hired. The farmer's product sells for $3 per unit and the wage rate is $13 per worker. Refer to the above information. What is the farmer's profit-maximizing output? A. 20 B. 32 C. 37 D. 40
C. 37
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. A decline in the demand for shoes will cause the demand for leather to decline
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. Firm is hiring labor under purely competitive conditions
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. Inelastic
Answer the question on the basis of the following information: Suppose a firm hires both labor (L) and capital (C) under purely competitive conditions. The price of labor is PL and that of capital is PC. The marginal product of labor is MPL and that of capital is MPC. The firm sells its product competitively at a price of PX. 92. Refer to the above information. Which of the following must pertain if the firm is to minimize the cost of producing any output? A. MPC = MPL = PX B. MPC = PC and MPL = PL C. MPC/PC = MPL/PL D. MPC/PX = MPL/PX
C. MPC/PC = MPL/PL
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. MPD/PD = MPF/PF.
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. MRP = MRC
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. Marginal revenue product of the first worker is $20.
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. The amount an additional worker adds to the firms total output.
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. a Purely competitive and an imperfectly competitive producer will both hire less labor
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. be less elastic than that of a purely competitive seller.
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. easier it is to substitute other resources in production.
Answer the question on the basis of the following information: Suppose a firm hires both labor (L) and capital (C) under purely competitive conditions. The price of labor is PL and that of capital is PC. The marginal product of labor is MPL and that of capital is MPC. The firm sells its product competitively at a price of PX. Refer to the above information. In competitive labor markets, the marginal cost of an additional unit of labor: A. is equal to PL MPL. B. is equal to MPL/PL. C. is equal to PL. D. cannot be determined from the information given.
C. is equal to PL.
Answer the question on the basis of the following information: Suppose a firm hires both labor (L) and capital (C) under purely competitive conditions. The price of labor is PL and that of capital is PC. The marginal product of labor is MPL and that of capital is MPC. The firm sells its product competitively at a price of PX. Refer to the above information. If MPC/PC > MPL/PL, the firm: A. may be maximizing profits, but it is not minimizing costs. B. may be minimizing costs, but it is not maximizing profits. C. is neither minimizing costs nor maximizing profits. D. is minimizing costs and maximizing profits.
C. is neither minimizing costs nor maximizing profits
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. labor demand is unit-elastic.
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. 5 and 2
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. All of these reasons.
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. Marginal resource cost is equal to their MRP
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. Slopes downward because the marginal product of successive workers declines.
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. The derived demand of labor
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. both purely competitive and imperfectly competitive seller
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. is a necessary, but not sufficient, condition for the maximization of profits.
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. larger the labor cost-total cost ratio, the greater will be the elasticity of labor demand.
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. the demand for resource X to be more elastic than the demand for resource Y.
Answer the question on the basis of the following information: Harry owns a barber shop and charges $6 per haircut. By hiring one barber at $10 per hour the shop can provide 24 haircuts per 8-hour day. By hiring a second barber at the same wage rate the shop can now provide a total of 42 haircuts per day. Refer to the above information. Harry should: A. hire the second barber because he will add $28 to profits. B. hire the second barber because he will add $108 to profits. C. not hire the second barber because he is less productive than the first barber. D. not hire the second barber because he will diminish profits.
a. Hire the second barber because he will add $28 to profits.
