ECON 231
Chapter 14 Study Quiz


1.
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.


2.
"Income receivers should be paid in accordance with the value of output each produces." This statement is consistent with the:
A.
monopoly theory of income distribution.
B.
marginal productivity theory of income distribution.
C.
least-cost, but not profit-maximizing, combination of inputs.
D.
concept of compensating wage differences.


3.
Marginal revenue product (MRP) is the change in total product (total output) associated with hiring an additional unit of labor.
A. True
B. False


Answer the next question(s) on the basis of the following data:

Reference: REF27126

4.
Refer to the above data. Assuming labor and capital are the only inputs, the firm's economic profits will be:
A.
$102.
B.
$82.
C.
$67.
D.
$28.


5.
Marginal product is:
A.
the output of the least skilled worker.
B.
the amount an additional worker adds to the firm's total output.
C.
a worker's output multiplied by the price at which each unit can be sold.
D.
the amount any given worker contributes to the firm's total revenue.


6.
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.


7.
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.


8.
The demand for labor is a derived demand whereas the demand for capital is not.
A. True
B. False


9.
The marginal revenue product of any input is the:
A.
cost of an additional unit of that input.
B.
added profits resulting from the use of one more unit of that input.
C.
additional output resulting from the use of one more unit of that input.
D.
additional revenue resulting from the use of one more unit of that input.


10.
Which of the following occupations is not among the ten projected fastest growing U.S. occupations in terms of percentage increases?
A.
medical assistants
B.
computer systems administrators
C.
desktop publishers
D.
loan interviewers


11.
Suppose a technological improvement increases the productivity of a firm's capital and, simultaneously, its workers' union negotiates a wage increase. We can predict that:
A.
the firm will use relatively more capital and relatively less labor.
B.
the firm will use relatively more labor and relatively less capital.
C.
inputs of capital and labor will be unchanged.
D.
the firm's equilibrium output will necessarily increase.


12.
A firm that is motivated by self interest should:
A.
employ the combination of resources that will produce the profit-maximizing output at the minimum cost.
B.
hire each input so the productivity of each is equal at the margin.
C.
always use large amounts of the most productive inputs and small amounts of the least productive inputs in producing its output.
D.
always use large amounts of cheap inputs and small amounts of expensive inputs in producing its output.



Reference: REF27058

13.
Refer to the above graph. Other things equal, an increase in the price of a complementary resource would cause a(n):
A.
move from a to b on D1.
B.
shift from D2 to D3.
C.
shift from D3 to D2.
D.
move from b to a on D1.


14.
Suppose that the labor cost-total cost ratio in industry A is 82 percent while in industry B it is 21 percent. Other things equal, labor demand will be:
A.
more elastic in industry A than in B.
B.
unit elastic in both industry A and B.
C.
more elastic in industry B than in A.
D.
relatively elastic in both industry A and B.


Answer the next question(s) on the basis of the data contained in the following table. Assume that the firm is hiring labor in a purely competitive market.

Reference: REF27038

15.
The above data reveal that:
A.
the firm is selling its product in a purely competitive market.
B.
the firm is selling its product in an imperfectly competitive market.
C.
there is no level of output at which this firm can operate at a profit.
D.
the law of diminishing returns is not applicable to this firm.



Reference: REF27058

16.
Refer to the above graph. Each of the three labor demand curves shown slopes downward because of the:
A.
law of diminishing marginal utility.
B.
law of increasing opportunity costs.
C.
principal-agent problem.
D.
law of diminishing returns.


17.
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.


Answer the next question(s) 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.
Reference: REF27133

18.
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.


19.
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.


20.
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.


21.
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.


22.
The output effect occurs:
A.
only when wage elasticity of demand is greater than 1.
B.
because a change in the price of a resource will alter costs and therefore the equilibrium output.
C.
only when the inputs being employed are substitutes.
D.
only when the inputs being employed are complementary.


23.
Suppose the price of the product that labor is producing increases and simultaneously the price of capital, which is substitutable for labor, decreases. Assuming that the substitution effect is greater than the output effect, the demand for labor:
A.
will increase.
B.
will decrease.
C.
may either increase or decrease.
D.
will not change.


24.
The marginal productivity theory of income distribution has been criticized because:
A.
the resulting distribution of income is likely to be too equal to maintain production incentives.
B.
income from inherited property is inconsistent with the theory.
C.
purely competitive conditions characterize most resource markets.
D.
it fails to recognize that resource demand is derived from product demand.


25.
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.


26.
(Consider This)   In the market for superstars:
A.
earnings reflect pricing power rather than marginal revenue product.
B.
small differences in talent get magnified into huge differences in pay.
C.
entry and exit rarely occur.  
D.
product demand is typically highly elastic.


27.
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.


28.
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.


29.
The change in a firm's total revenue that results from the hire of an additional worker is measured by:
A.
marginal product.
B.
marginal revenue.
C.
marginal revenue product.
D.
average revenue product.


30.
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.


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