Unit 5 Microeconomics quiz

How do you calculate marginal revenue product?

MRP = Marginal Product (MP) × Marginal Revenue (MR)

What does a firm’s decision to hire a factor of production not depend on?

The average product of the factor input

What are the factors of production

land, labor, and capital

Which of the following will occur in a given labor market when the wage rate rises?

The quantity of labor supplied will increase.

Suppose the demand for automobiles increases. Which of the following explains what happens in the labor market for automobile workers?

The demand for automobile workers increases resulting in higher wages and employment.

Which of the following will result in a decrease in the supply of labor?

An increase in the preference for leisure

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?

Responses

Employ less labor and more capital because the marginal product per dollar spent on labor is less than the marginal product per dollar spent on capital.

In comparison to a firm in a perfectly competitive labor market, a firm in a monopsonistic labor market typically will hire

fewer workers and pay a lower wage

how to calculate marginal factor cost

ΔTFC / ΔQ

derived demand

demand for an input used in the production process

marginal product of labor

change in output associated with adding an additional worker

value of the marginal product (VMP)

marginal product of an input multiplied by the price of the output it produces (slopes downward due to diminishing MP)

marginal profit

vmp-wage

The labor-leisure trade-off

people work because they need to earn a living (they have other interests, obligations, and goal)

substitution effect

occurs when laborers work more hours at higher wages, substiting labor for lesiure (oppurtunity cost of enjoying more leisure means giving up more income)

income effect

occurs when laborers work fewer hours at higher wages, using their additional income to demand more leisure

leisure

normal good meaning that as income increases, workers may use their additional income to demand more leisure

backward bending labor supply curve

occurs when workers value additional leisure more than additional income (offset substitution effect)

what are the changes in the supply of labor?

other employment oppurtunities, the changing composition of the workforce, immigration and migration,

other employment oppurtunites

if a firm offers higher wages, more workers will be willing to work there. Decrease in competition wages increase in supply of firm

the changing composition of the workforce

many more women being employed than a generation ago

immigration and migration

increase supply of (inexpensive) labor

How does the market for labor reach equilibirum

wages = price at which workers are willing to “rent” their time to employers

what does an increase in demand result in?

shortage

what does an increase in supply result in?

surplus

outsourcing of labor

occurs when a firm shifts jobs to an outside company, usually overseas, where the cost of labor is lower

what does outsourcing do in the LR?

benefits domestion consumers & producers since it lowers costs and prices, which enhances social welfare

monopsony

situation in which there is only one buyer (market power, can pay workers less)

economic rent

difference between what a factor of production earns and what it could earn in the next best alternative

how do you decide if you should use more land labor or capital?

divide the VMP, MP, or MRP by the wage or price(use less of the factor with the smallest bang per buck and more of the factor with the largest)

Marginal product

this refers to the change in output as a result of additional labor or units.

Marginal Revenue

this is an increase in total revenue generated by increase in production. Marginal revenue can be generated by producing one more unit of output or selling an additional unit of a good.

MRP vs VMP

MRC = MRP, VMP is MRP at the point at which the firm would hire/produce at

Marginal revenue product

This is an increase in a firm's revenue resulting from adding one more resource unit called the marginal product.

Marginal Resource cost

The amount the total cost of employing a resource increases when a firm employs 1 additional unit of the resource

Where should a firm produce?

where MRP = MRC or as close to it as possible

how do you find MRC?

constant cost (wage or rent)

Why is supply and MRC seperate in a monopsony?

when the firm increases the wage for one worker, they need to increase the wage for all workers)