Labor Theory Econ Exam 2

W<MRP<VMP, what kind of firm is under this consideration?

A labor market monopsonist that is a product market monopolist

W=MRP=VMP, what kind of firm is under this consideration?

A perfect competitor in both the labor and product markets

The Cobweb model is useful for describing

Delayed supply responses to wage rate changes

Generally speaking, labor demand curves for ( ) firms tend to be *less elastic* than labor demand curves for ( ) firms

Monopoly; Perfectly competitive

For a firm that sells its output in perfect competition, labor's MRP equals its VMP because

P equals MR

Market labor supply curves are generally

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

"The extra output, measured in dollars, that accrues to society when an additional unit of labor is employed" best describes

value of marginal product

Which one of the following is not typically offered as an explanation for efficiency wages?

*An employer will not pay a wage that exceeds the market rate.* A higher wage may reduce turnover. A higher wage may allow lower-income workers to afford better nutrition that increases their stamina. The higher wage may be perceived by workers as raising the opportunity cost of shirking.

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

A worker leaves work early without permission.

Why does the marginal revenue product of labor fall for a monopoly firm as the firm hire more workers?

Because the product price falls and the marginal product of labor falls

In comparing two otherwise identical industries X and Y, an economist finds that labor demand is *less elastic* in industry X. Which of the following would support this finding?

Capital and labor are less easily substituted for one another in X than in Y.

If wages for engineers rise and entering college freshmen response to that wage *increase* by choosing to major in engineering, the supply response will be

Delayed

Suppose a firm will hire 10 workers at a wage of $80 per day and only 8 workers at a wage of $90 per day. This firm's demand for labor is

Elastic

To find the market demand curve for a particular type of labor, simply sum the labor demand curves of all employers of that type of labor, this statement is

False, although the price of output for any individual firm may be constant, this may not be the case for all firms taken collectively.

Which of the following best explains why the market labor supply curve is upward sloping, even though individual supply curves are normally backward bending?

Higher wages in a given market attract more workers away from other activities, more than compensating for any reduction in hours by individuals already in the market.

Using a horizontal sum of individual labor demand curves to find the market labor demand cure is

Incorrect, because to do so ignores potential changes to the product price

Which of the following best exemplifies a piece-rate compensation scheme?

Jose's pay is proportional to the number of wiring harnesses he assembles each day.

A ( ) will not allocate labor efficient because the MWC of labor is greater than the wage for this firm

Labor market monopsonist that sells in a perfectly-competitive product market.

Compared to the long-run labor demand curve, the firm's short-run curve is typically

Less Elastic

An increase in the wage rate of labor will cause the greatest decrease in the amount of labor employed by the firm during the ( ) run, when both the output effect and the substitution effect apply.

Long

Compared to present-oriented people, individuals who are more *future-oriented* tend to have _______ discount rates and consequently tend to obtain _______ education and earnings.

Lower; More

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

MRP = MWC

A firm in perfectly competitive labor and product markets has a ( ) labor demand curve and a ( ) labor supply curve

Negatively-sloped; Horizontal

For a firm hiring labor and selling its output in perfectly competitive markets,

PL = MWC and VMP = MRP.

Compared to a firm that sells its output competitively, an otherwise *identical monopolist* operating in the same labor market will

Pay the same wage

In comparing two otherwise identical industries x and y, an economist finds that labor demand is *more elastic* in industry x. Which of the following would support this finding?

Product demand elasticity is higher in X than in Y

Suppose the price of capital *falls* and as a result firms begin to reduce the amount of labor they employ. All else equal, this would imply that labor and capital are gross

Substitutes

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.

True

The monopolist's demand for labor curve is less elastic than if it were a competitor in the sale of its output.

Which of the following would tend to *increase* labor supply to a particular job?

The perceived status of the job improves.

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.

MRP = W < VMP , what kind of firm is under this consideration?

a product market monopolist that is a perfect competitor in the labor 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

Which of the following can be predicted to *increase* the demand for labor?

an increase in product demand

All else equal, which of the following will increase the demand for labor in a particular market?

an increase in the number of employers

Suppose that the *decline* in prices of personal computers has reduced the demand for labor at a particular firm. We may conclude that at this firm

computers and labor are gross substitutes.

For a firm selling output in an imperfectly competitive market, its labor demand curve will

decline because of diminishing marginal productivity and because product price declines as output increases.

Suppose workers in labor market X are qualified to work in an alternative competitive labor market Y, and vice versa. An *increase* in the demand for labor in market Y will

decrease labor supply in X and drive its wage up.

Assume that skilled labor and energy are substitutes in production. An increase in energy prices is then predicted to

decrease the demand for skilled labor if the output effect outweighs the substitution effect.

In the textile industry, industrial robots and assembly line workers are *gross substitutes*. Accordingly, the drop in the price of robots has

decreased the demand for assembly line workers.

Because there is a _______ marginal rate of substitution of fringe benefits for wages, a worker's wage-fringe indifference curves are typically _______.

diminishing; convex to the origin

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

equalize if information is perfect and mobility is costless.

The share of fringe benefits in total employee compensation

grew steadily from 1960 through the present.

A net *increase* in people's preferences for work relative to leisure in a particular market will

increase labor supply, reducing the wage rate.

Suppose a firm decides to raise pay as a way to reduce worker turnover.The resulting pay differential

is an equilibrium differential

Suppose that, as a result of a *decrease* in the market supply of labor, the wage rate has risen 10%. After adjusting its employment level, a firm finds its total wage bill has decreased. This occurrence indicates that the firm's labor demand

is elastic over this range of wages.

Suppose that, as a result of an *increase* in the market supply of labor, the wage rate has fallen 10%. After adjusting its employment levels, a firm finds its total wage bill has decreased. This occurrence indicates that the firm's labor demand

is inelastic over this range of wages.

The Marginal Revenue product schedule

is the firm's labor demand schedule, provided the firm is operating in the zone of production

The long run response to a drop in the wage exceeds the short-run response for all of the following reasons except

it is more difficult to substitute capital for labor in the long run than the short run

A monopsonist's marginal wage cost curve is positively sloped because

it must pay a higher wage to attract additional workers, and it must pay this higher wage to all workers.

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.

All else equal, the imperfectly competitive seller's labor demand curve is

less elastic than that of a perfectly competitive seller.

At the profit-maximizing level of employment for a monopolist

marginal revenue product is less than the value of marginal product.

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

neither firms nor workers have any control over the market wage. *a few firms that dominate hiring in the market.* numerous equally qualified workers. perfect information.

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

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

For employers, the chief advantage of royalties and commissions is that these pay policies

reduce shirking where work effort is costly to observe.

The employer's share of the Social Security and Medicare components of the payroll tax has increased, from 6.13% in 1980 to its current rate of 7.65%. Because employers pay no payroll tax on many fringe benefits, this change in tax rates has effectively

reduced the "price" of fringe benefits, reducing the slope of the wage-fringe isoprofit line.

If all the firms in a labor market respond to an *increase* in the wage rate by employing less labor, the product price will

rise, increasing the marginal revenue product of labor

If the marginal product of labor is *greater* than the average product of labor, then

the average product of labor must be rising

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

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

A firm might choose to pay its employees a wage higher than that which would clear the market because

the higher wage raises the opportunity cost of shirking.

If the average product of labor is falling, then

the marginal product of labor must be less than the average product of labor

The effectiveness of profit-sharing plans may be diminished because

the plans are tied to group performance, so the link between profit-sharing and worker productivity is not always clear-cut.

A product market monopolist will not allocate labor efficiently because for this firm,

the product price falls as more labor is hired

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.

Compared to the allocatively efficient amount, a monopsonist tends to hire

too few workers because marginal wage cost exceeds the wage rate.