Chapter 18 – The Markets for the Factors of Production-Econ 102

Which of the following best describes the economy's stock of equipment and structures? a. capital b. aggregate demand c. long-term inventory d. aggregate stock

capital

Rent, interest, and profit are all forms of income paid to the owners of a. aggregate stock b. aggregate demand c. firms and nonprofits d. land and capital

land and capital

The factors of production are best defined as the a. output from raw materials b. inputs used to produce goods and services c. wages paid to the workforce d. goods and services sold in the market

inputs used to produce goods and services

For a computer software firm, capital could be thought of as (i) programmers (ii) wages to programmers (iii) computer equipment a. (i) only b. (ii) only c. (iii) only d. (i) and (iii)

(iii) only

For a retail gasoline station, which qualifies as capital? (i) tanks and pumps (ii) attendants' time (iii) the plot of land a. (i) only b. (iii) only c. (i) and (iii) d. (ii) and (iii)

(i) only

Because a firm's demand for a factor of production comes from its decision to supply a good, we call this a. differentiated demand b. secondary demand c. derived demand d. hybrid demand-supply

derived demand

Most total income in the U.S. is ultimately paid to households as a. profit b. rent c. interest d. wages

wages

In the U.S., which factor of production earns the largest share of income? a. land b. labor c. profit d. capital

labor

The basic tools of supply and demand apply to a. product markets and labor markets b. product markets but not labor markets c. product markets but not factor markets d. all except derived-demand markets

product markets and labor markets

Labor markets are different from most other markets because labor demand is a. vertical b. upward sloping c. elusive d. derived

derived

Which best illustrates "derived demand"? a. Higher autoworker wages raise robot demand b. Supplying more cars increases demand for autoworkers c. More minivans due to less demand for wagons d. Higher gas prices increase demand for small cars

Supplying more cars increases demand for autoworkers

The term "factor market" applies to the market for a. labor b. capital c. land d. all of the above

all of the above

Factor markets differ from product markets because a. equilibrium is rare b. factor demand is derived c. factor demand is upward sloping d. all are correct

factor demand is derived

How much U.S. income is wages and fringe benefits? a. >90% b. about 75% c. about 50% d. <75%

about 75%

Factor market analysis needs characterization of a. product demand b. marginal productivities c. final good prices d. all of the above

all of the above

Gertrude Kelp's salmon firm faces huge markets. It likely has a. wage power but no price power b. price power but no wage power c. power in both d. no power in either

no power in either

When hiring crew, Gertrude is a a. demander of labor b. supplier of labor c. buyer of capital d. demander of capital

demander of labor

If the price of salmon falls, Gertrude will most likely a. reduce her demand for crew b. fish more to offset revenue c. become a seller in a factor market d. hire more crew

reduce her demand for crew

If Gertrude is competitive in both markets, she is a price a. taker in salmon and wage setter in labor b. taker in labor and price setter in salmon c. taker in both d. setter in both

taker in both

In the salmon product market, Gertrude controls a. price b. quantity she supplies c. market environment d. all of the above

quantity she supplies

If Gertrude is a price taker in labor markets, she decides a. her fish price b. how many crew to hire c. the wage to pay d. all of the above

how many crew to hire

Labor-demand and salmon-supply come from Gertrude's a. desire to hire b. profit maximization c. altruism d. environment-profit balance

profit maximization

A profit maximizer a. aims to produce as much as possible b. measures success by employees c. always maximizes revenue d. does not directly care about number of workers

does not directly care about number of workers

On the horizontal axis of the production function we measure a. revenue b. marginal product c. input quantity d. output quantity

input quantity

The marginal product of labor is the change in a. output per extra dollar of revenue b. output per extra unit of labor c. revenue per extra unit of labor d. revenue per extra unit of output

output per extra unit of labor

If each additional worker contributes successively smaller output, there is a. diminishing profitability b. diminishing marginal cost c. diminishing marginal product d. increasing marginal product

diminishing marginal product

Diminishing marginal product implies the production function a. gets flatter as input rises b. gets steeper as input rises c. slopes downward d. is horizontal beyond some input

gets flatter as input rises

When deciding whether to hire another worker, firms look at a. costs only b. revenue only c. output only d. profit

profit

The contribution to profit from an extra worker equals change in a. profit − marginal product b. cost − wage c. revenue − wage d. profit − wage

revenue − wage

Value of marginal product (VMP) of any input equals its marginal product times the a. additional revenue b. marginal cost of output c. change in total profit d. market price of output

market price of output

The value of the marginal product of labor equals the change in a. MC from last worker b. total cost from last worker c. total revenue from last worker d. total profit from last worker

total revenue from last worker

What is the shape of the value-of-marginal-product-of-labor curve? a. U-shaped b. flat c. downward sloping d. upward sloping

downward sloping

To maximize profit, a competitive firm hires to the intersection of the a. MP and MC curves b. VMP curve and wage line c. VMP and MR curves d. TR curve and wage line

VMP curve and wage line

The shape of the VMP curve is best explained by a. tight labor markets b. labor surplus c. diminishing marginal product d. diminishing marginal cost

diminishing marginal product

If VMP_L exceeds the wage, hiring another worker increases a. profit b. total cost c. total revenue d. all of the above

all of the above

If wage exceeds VMP_L, hiring another worker a. decreases total revenue b. increases profit c. increases total cost d. all of the above

increases total cost

A competitive profit-maximizing firm hires until a. MP=0 b. MRP=0 c. MP=wage d. VMP=wage

VMP=wage

For a competitive firm the labor-demand curve is the a. MC curve b. VMP curve c. production function d. profit function

VMP curve

When labor is the only input, marginal cost of a unit of output equals a. MR − wage b. MPL − wage c. wage / MPL d. MPL / wage

wage / MPL

Diminishing marginal product is closely related to a. diminishing total cost b. diminishing marginal cost c. diminishing variable cost d. increasing marginal cost

increasing marginal cost

With diminishing but positive MPL, as more workers are employed, output a. always raises profit b. always lowers profit c. falls d. rises at a decreasing rate

rises at a decreasing rate

A worker's contribution to firm revenue is measured directly by the worker's a. marginal product b. value of marginal product c. MP × wage d. VMP × wage

value of marginal product

A profit-maximizing competitive firm with diminishing MPL has a a. perfectly inelastic labor supply b. perfectly elastic labor supply c. downward-sloping labor demand d. upward-sloping labor demand

downward-sloping labor demand

If a firm with 50 employees increases employment, then at 50 employees a. wage > VMP_L b. VMP_L > wage c. MPL is rising d. it's seeking market share

VMP_L > wage

A competitive firm hires an extra worker only if a. Δrevenue > Δcost b. Δrevenue > Δprofit c. Δprofit > Δcost d. ΔMPL > Δcost

Δrevenue > Δcost

A profit-maximizing competitive firm will always hire an additional worker when the added worker makes a positive contribution to a. total revenue b. total profit c. VMP_L d. MR

total profit

Observing a firm reduce employment from 25 employees implies that at 25 employees a. losing market share b. not minimizing losses c. wage > VMP_L d. VMP_L > wage

wage > VMP_L

For a competitive firm that operates, attainment of the usual objective requires a. P=MC b. wage=VMP_L c. profit maximization d. all of the above

all of the above

A competitive firm hires workers up to where VMP_L equals the a. ATC b. AVC c. wage d. output price

wage

What shifts the labor-demand curve? (i) productivity changes (ii) wage changes (iii) output-price changes a. (i) and (ii) b. (ii) and (iii) c. (i) and (iii) d. all

(i) and (iii)

If airline ticket prices fall, the demand for flight attendants a. shifts up b. shifts left c. shifts right d. unchanged

shifts left

If consumers demand more genetically engineered foods, genetic engineers' VMP_L will a. rise b. fall c. be unchanged d. either

a. rise

TABLE (Workers/Output/MP/VMP/Wage/Marginal Profit). What is the market price of the final good? a. $5 b. $6 c. $8 d. $10

$10

From the table, increasing marginal product a. only after first worker b. only after second c. only after third d. never occurs

never occurs

If the firm hires two workers, together they produce a. 80 b. 100 c. 180 d. 200

180

What is the marginal product of the fourth worker? a. 30 b. 40 c. 60 d. 100

40

The changing marginal product exemplifies a. diminishing marginal product b. utility maximization c. supply and demand d. labor theory

diminishing marginal product

What is the marginal profit of the fourth worker? a. $400 b. $200 c. $0 d. −$100

−$100

What is the fourth worker's contribution to total revenue? a. −$100 b. $200 c. $400 d. $500

$400

To maximize profit, how many workers will the firm hire? a. 2 b. 3 c. 4 d. 5

3

To maximize profit, hire as long as VMP_L equals or exceeds a. $200 b. $300 c. $400 d. $500

$500

For maximum profit, a firm hires until wage equals (i) VMP_L (ii) MC of an extra unit (iii) P×MPL a. (i) & (ii) b. (i) & (iii) c. (ii) & (iii) d. all

(i) & (iii)

Competitive firms that maximize profit hire workers until VMP_L a. equals wage b. equals final-good price c. begins to fall d. begins to rise

equals wage

For a profit-maximizing competitive firm, the VMP_L curve is the a. always-rising curve b. falling only when MPL rises c. labor supply curve d. labor demand curve

labor demand curve

In the VMP diagram, the VMP curve is also a. labor supply b. labor demand c. MR curve d. TR curve

labor demand

The shape of the VMP curve suggests a. increasing productivity with more labor b. increasing returns to scale c. increasing returns to scale d. diminishing marginal product

diminishing marginal product

To maximize profit, hire a quantity of labor a. less than Q b. greater than Q c. equal to Q* d. cannot be determined

equal to Q*

If employing fewer than Q* workers, hiring more would a. increase MPL b. lower the final good's price c. increase profit d. decrease profit

increase profit

For a competitive firm, VMP (i) increases when output price decreases (ii) changes when MPL changes (iii) diminishes as workers rise a. (i) & (ii) b. (i) & (iii) c. (ii) & (iii) d. all

(ii) & (iii)

A firm's labor-demand curve represents a. labor supplied at market wage b. MPL c. number of workers willing to work at any wage d. number of workers the firm will hire at any wage

number of workers the firm will hire at any wage

Competitive firms choose output so that price equals a. marginal product b. value of marginal product c. marginal cost d. marginal profit

marginal cost

Competitive firms hire until the added benefit from the last worker equals (i) added cost (ii) the wage (iii) output price a. (i) only b. (iii) only c. (i) and (ii) d. (ii) and (iii)

(i) and (ii)

Dan's bakery: which increases demand for bakers? (i) muffin price rises (ii) add ovens (iii) bakers unionize a. (i) & (ii) b. (ii) & (iii) c. (i) & (iii) d. all

(i) & (ii)

Charles's bakery: which decreases demand for bakers? a. teen glamor movie raises applicants b. price of baked goods falls c. bakers form a union d. all

price of baked goods falls

A competitive firm sells output for $45. MPL of 30th worker is 4; wage $150. What's true? a. Profit rises if hiring 31st b. VMP for 30th is $600 c. MRP for 30th is $600 d. all

a. Profit rises if hiring 31st

Aurora Cabinets: hiring 10 → 4 sets; 11 → 4.2 sets; price $2,000; wage $200. Which is true? a. VMP_11th = $500 b. MRP_11th = $400 c. profit maximized d. cut to 10 raises profit

MRP_11th = $400

The labor-demand curve shifts with changes in the a. wage b. quantity of labor demanded c. product price d. all

product price

Which changes VMP_L? a. tech progress b. change in MPL c. change in output price d. all

all

Winter job $10/hr, summer $12/hr. In winter, opportunity cost of an hour skiing is a. $12 b. between $10 and $12 c. $10 d. less than $10

$10

In summer, opportunity cost of an hour hiking is a. $12 b. between $10 and $12 c. $10 d. less than $10

$12

If the opportunity cost of Jerry's leisure rises and his supply curve is upward sloping, he works a. more hours b. fewer hours c. same hours d. any of the above

more hours

If Jerry takes fewer hours of leisure in summer than winter, his labor supply curve a. horizontal b. vertical c. slopes upward d. slopes downward

slopes upward

Which events shift labor supply? a. more women willing to work b. immigration c. changing attitudes d. all

all

Labor supply shifts when a. employers need more hires b. new technology c. workers change desired work at any wage d. workers become more productive

workers change desired work at any wage

Labor supply curve represents trade-off between a. work and wage b. work and leisure c. wage and productivity d. technology and wage

work and leisure

Upward-sloping labor supply means a. workers buy more leisure as income rises b. workers supply less labor when wages are high c. higher opportunity cost of leisure leads workers to supply more labor d. all

higher opportunity cost of leisure leads workers to supply more labor

If workers respond to a higher opportunity cost of leisure by taking less leisure, their supply curve is a. horizontal b. vertical c. downward sloping d. upward sloping

upward sloping

If workers respond to a higher opportunity cost of leisure by taking more leisure, their supply curve is a. upward sloping b. downward sloping c. horizontal d. vertical

downward sloping

What happens to pear-picking labor supply when apple-pickers' wage increases? a. unchanged b. decreases c. increases d. ambiguous

decreases

When Mexican workers move to the U.S., labor supply a. decreases in both b. increases in both c. increases in U.S., decreases in Mexico d. increases in Mexico, decreases in U.S.

increases in U.S., decreases in Mexico

A household's labor-supply decision is most linked to a. other factor supplies b. technological change c. leisure-work tradeoff d. immigration trends

leisure-work tradeoff

The opportunity cost of an hour of leisure is a. 60 minutes b. an hour of sleep c. wear and tear on stuff d. hourly wage

hourly wage

Who has the highest opportunity cost of leisure? a. lawyer $200/hr playing golf b. doctor $210/hr sleeping c. clerk $15/hr watching TV d. waiter $12/hr reading

doctor $210/hr sleeping

The labor supply curve reflects how a. workers' labor-leisure decisions respond to wage b. workers' opportunity-cost decisions respond to labor supplied c. firms' labor-leisure decisions respond to labor demanded d. firms' hiring responds to profit opportunities

workers' labor-leisure decisions respond to wage

If Emma's individual labor supply is upward sloping, then she responds to an increase in a. wage by working more hours b. opp. cost of leisure by working fewer hours c. opp. cost of leisure by taking more leisure d. all

a. wage by working more hours

An individual's labor supply curve a. can never slope downward b. slopes downward if higher wage → fewer leisure hours c. slopes downward if higher opp. cost of leisure → fewer work hours d. is horizontal if hours are constant regardless of opp. cost

slopes downward if higher opp. cost of leisure → fewer work hours

Immigration into the U.S. is often a source of a. higher labor demand b. lower labor demand c. higher labor supply d. lower labor supply

higher labor supply

Which event increases labor supply? a. product price rises b. immigration increases c. wage rises d. all

immigration increases

When labor supply increases, a. MPL always increases b. firms reduce employment c. wages increase if supply is upward sloping d. wages decrease if demand is downward sloping

wages decrease if demand is downward sloping

Albanian refugees into Italy likely caused a. lower total employment b. higher wages c. lower MPL in Italy d. all

lower MPL in Italy