U5 MCQ
Answer D The cost-minimizing combination of inputs is based on marginal product per dollar spent. In this example, the marginal product per dollar spent on labor is 0.5 (50/$100), which is less than the marginal product per dollar spent on capital, which is 0.75 (30/$40). Thus the firm can minimize the cost of the given output by using less labor and more capital.
A firm is currently producing 3,000 units of output daily by employing 20 units of labor at a price of $100 per unit and 40 units of capital at a price of $40 per unit. The marginal product of the last unit of labor employed is 50, and the marginal product of the last unit of capital employed is 30. In order to minimize its production costs, the firm should do which of the following? A. Employ more labor and less capital because the marginal product of labor is greater than the marginal product of capital B. Employ less labor and more capital because the firm is currently spending $2,000 on labor and only $1,600 on capital C. Employ more labor and less capital because the firm already employs 40 units of capital and only 20 units of labor D. Employ less labor and more capital because the marginal product per dollar spend on labor is less than the marginal product per dollar spent on capital E. Employ less labor and more capital because a unit of labor costs $100 while a unit of capital costs only $40
Answer B Neither a firm's decision to hire a factor nor its demand for a factor depend on the average product of the factor. A firm's decision to hire a factor of production depends on the productivity of the factor, as measured by the marginal product of the factor, the factor's price (or marginal factor cost), and the price of the firm's product (or the demand for the product the factor produces).
A firm's decision to hire a factor of production DOES NOT depend on which of the following? A. The price of the product produced by the factor input B. The average product of the factor input C. The price of the factor input D. The demand for the product the factor produces E. The marginal product of the factor input
Answer A The monopsonistic (single buyer) firm will equate its marginal factor cost with the marginal revenue product and set the wage on the supply curve, which lies below the marginal factor cost curve. Thus the monopsonistic firm offers a wage less than the wage set in a perfectly competitive market and hires fewer workers.
In comparison to a firm in a perfectly competitive labor market, a firm in a monopsonistic labor market typically will hire A. Fewer workers and pay a lower wage B. Fewer workers and pay the same wage C. The same number of workers and pay a lower wage D. More workers and pay a lower wage E. More workers and pay the same wage
Answer C Marginal factor cost is the change in total factor cost when adding an additional unit. The total factor cost of hiring five workers is $55, while hiring four workers costs $40. Thus, the marginal factor cost of adding a fifth worker is $15.
The data in the table describe the supply schedule for labor in a monopsonistic labor market. The marginal factor cost of the fifth worker is A. $1 B. $11 C. $15 D. $17 E. $55
Answer C The third worker's marginal revenue product is 6*$10=$60, which is greater than the wage, $55. However, the fourth worker's marginal revenue product is 5*$10=$50, which is less than the wage, $55. Thus, the firm will maximize profit by employing three workers.
The table shows the short-run production of a firm that produces and sells its product in a perfectly competitive market. If the firm sells its product at the market price of $10 per unit, how many workers should the firm employ to maximize profit if the wage rate is $55? A. One B. Two C. Three D. Four E. Five
Answer B The marginal revenue product of the fourth worker is equal to the marginal product of the fourth worker (that is, the amount that production increases when a fourth worker is added) multiplied by the price of the product. In this case, MRP=(26-21)*$10=$50.
The table shows the short-run production of a firm that produces and sells its product in a perfectly competitive market. If the firm sells its product at the market price of $10 per unit, the marginal revenue product of the fourth worker is A. $40 B. $50 C. $65 D. $260 E. $300
Answer C Pilots can be considered a factor of production in the airline industry. When demand for a product or service (such as air travel) increases, it can lead to an increase in the demand for factors (such as pilots) used to produce that product or service.
Which of the following illustrates how factor demand is related to product demand? A. The quantity demanded for restaurant meals depends on the price of the meal B. The demand for books depends on the number of authors in the market C. The demand for airline pilots depends on the demand for air travel D. The demand for auto mechanics depend on the supply of auto parts E. The demand for health care depends on the cost of health care
Answer D An increase in the demand for a product (such as automobiles) increases the demand for the factor (such as automobile workers) that is used to produce it. An increase in the demand for automobiles would raise the price and output of automobiles. As automobile-producing firms expand output to take advantage of the higher demand for automobiles, the demand for automobile workers would increase, raising both the wages and the number of automobile workers employed.
Suppose the demand for automobiles increases. Which of the following explains what happens in the labor market for automobile workers? A. The price of automobiles increases and the supply of automobile workers increases, resulting in lower wages and employment B. The price of automobiles decreases and demand for automobile workers decreases, resulting in higher wages and employment C. The price of automobiles increases and the supply of automobile workers decreases, resulting in higher wages and employment D. The price of automobiles increases and the demand of automobile workers increases, resulting in higher wages and employment E. There is no impact on the labor market, since the change in demand is in the product market
Answer A The quantity of labor Qa corresponds to where the marginal revenue of labor (MRPL) equals the marginal factor cost (MFC), and the wage W1 is determined by the supply curve. A firm will pay the lowest wage it can pay to attract the desired quantity of labor.
The graph represents a monopsonistic labor market and shows the marginal factor cost (MFC), the marginal revenue product (MRPL), and the supply of labor (SL). Assuming the firm sells its output in a perfectly competitive commodity market, the firm will A. Employ Qa workers and pay a wage of W1 B. Employ Qa workers and pay a wage of W2 C. Employ Qa workers and pay a wage of W3 D. Employ Qb workers and pay a wage of W2 E. Employ Qb workers and pay a wage of W4
Answer C A decrease in the product price will decrease the demand for factors used to produce that product. If the price of a product declines, producers of that product will demand fewer workers to produce that product. In other words, the demand curve of laborers to produce the product will shift to the left.
Which of the following will cause a decrease in the demand for labor? A. A decrease in wage rates B. An increase in worker productivity C. A decrease in the price of the product that the labor is used to produce D. An increase in wage rates E. Greater preference for leisure rather than work
Answer C An increase in the wage rate causes a movement up along a given labor supply curve, resulting in an increase in the quantity of labor supplied. There is a positive relationship between the wage rate and the quantity of labor supplied.
Which of the following will occur in a given labor market when the wage rate rises? A. The quantity demanded of labor will increase B. The demand for labor will decrease C. The quantity of labor supplied will increase D. The supply of labor will decrease E. The supply of labor will increase
Answer C A growing preference for leisure reduces the supply of labor, which shifts the supply of labor curve to the left, as more individuals choose leisure over work.
Which of the following will result in a decrease in the supply of labor? A. An increase in worker productivity B. An increase in the wage rate C. An increase in the preference for leisure D. A decrease in the price of the product that the labor is used to produce E. A decrease in the wage rate