Econ Ch. 14 – Flashcards
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A firm should hire more labor when the marginal revenue product of labor
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exceeds the wage rate
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The marginal revenue product of labor is equal to
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MPL * MR
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The marginal revenue product can be expressed as the
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increments to revenue received from one additional unit of input hired
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Other things being equal, the marginal revenue product (MRP) curve for a competitive seller
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lies above MRP curve for a monopolist
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What can account for the negative slop of the marginal revenue product curve?
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diminishing marginal returns
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In the competitive output market for good Q, the marginal revenue product for an input X can be expressed as
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MPx * PQ
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If the market for labor is perfectly competitive, the profit maximizing level of labor occurs where
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MRPL = W
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You are the manager of a firm producing green chalk. The marginal product of labor is: MPL = 24L- 1/2 Suppose that the firm is a competitor in the green chalk market. The price of green chalk is $1 per unit. Further suppose that the firm is a competitor in the labor market. The wage rate is $12.00 per hour. Given the information, what is the revenue product of labor?
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24L-1/2
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How much labor will be hired to maximize profit?
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4
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If leisure is a normal good, then the income effect of a decrease in wage will
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increase the number of hours worked
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The substitution effect of a decrease in the wage will
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increase leisure, regardless of whether leisure is a normal or inferior good.
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If an individual's labor supply curve is backward bending, then
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the income effect associated with a higher wage is greater than the substitution effect
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A firm can hire labor at the minimum wage of $4.25 per hour. Assume that labor works 8 hours a day. The firm's production function is as follows: If each unit of output sells for $5, how many days of labor will the firm hire to maximize profit?
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2
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What is the marginal revenue product of the 4th worker?
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25
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What is the average product of the 4th worker?
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6.5
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Assume that labor and capital are complements in production and that the wage declines. Which of the following statements best describes the adjustment in the use of labor?
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More labor is used both because of the reduced wage and increase use of capital.
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When compared to the demand curve for only one variable input, the demand curve for a factor input when several inputs are variable is
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more elastic
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If only one firm in an industry could take advantage of a reduced wage and all other firms continue paying the old wage, how would one best describe the one firm's reaction to this reduced wage assuming labor is only variable input? The marginal revenue product of labor curve
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would remain unchanged, and the firm would hire more labor at the lower wage
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An increase in technology that enhances labor productivity will likely result in:
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an increase in labor employment and an increase in the wage rate
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When the factor market is purely competitive, the firm's average expenditure curve for a factor of production is
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identical to the marginal expenditure curve
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Under what circumstances are the marginal expenditure for an input and the average expenditure always equal? Where there is a
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competitive buyer
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A firm purchases a factor of production in a competitive market. At the current purchase rate the MRP of the factor is greater than the marginal expenditure for the factor. Thus, the firm
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can increase profit by expanding the employment of the factor of production
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Assume that as the wage rate rises a worker's substitution effect for leisure is larger than the income effect. We can conclude that in this region, the worker's
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labor supply curve will have the usual upward slope
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The industry demand curve for labor is the
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horizontal sum of individual firm labor demand curves
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If the firms in an industry could take advantage of a reduced wage, how would one best describe the firms' demand for labor? The MRPL
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schedule would remain unchanged, and the firms would hire more labor at the lower wage
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The marginal product of labor for Acme, Inc is 15. The average product of labor is 25, and the price of labor is $10. Assuming that Acme, Inc is competitor in its output and input markets, the marginal revenue product of labor: A) $10 B) $150 C) $250 D) $375 E) Cannot be determined
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CANNOT BE DETERMINED
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The Acme Company is a perfect competitor in its input markets and its output market. Its average product of labor is 30, the marginal product of labor is 20, the price of labor is $20, and the price of the output is $5. For Acme Company, the marginal revenue product of labor
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$100
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The Acme Company is a perfect competitor in its input markets and its output market. Its average product of labor is 30, the marginal product of labor is 20, the price of labor is $10. For Acme Company, the marginal revenue product of labor is
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less than $200
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The Acme Company is a perfect competitor in its input markets and its output market. Its average product of labor is at its maximum and equals 30. The marginal revenue product of labor is $200. The price of its output
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$10
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Suppose a firm has one variable input, labor. Why is the MRPL curve for a competitive firm above the MRPL curve for a monopolist?
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Although marginal product of labor may be the same under both market structures, the marginal revenue of the monopoly declines with output.
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I. Under profit maximization, the quantity of labor is used in production optimal if MR=w/MPL II. The expression MR=w/MPL implies that the revenue earned from the last unit of output produced equals the marginal cost of the last unit of ouput.
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BOTH TRUE
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Suppose labor and capital are variable inputs. The wage rate is $20 per hour, the marginal product of labor is 30 units, the rental rate of capital is $100 per hour, and the marginal product of capital is 150 units. If the wage rate declines to $15 per hour, the firm employs more labor and the marginal product of labor declines to 20 units. Assuming the rental rate of capital remains the same, what happens to the amount of capital used by the firm?
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INCREASES
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Suppose labor and capital are variable inputs. The wage rate is $20 per hour, the marginal product of labor is 30 units, the rental rate of capital is $100 per hour, and the marginal product of capital is 150 units. If the wage rate declines to $15 per hour, the firm employs more labor and the marginal product of labor declines to 20 units. Assuming the rental rate of capital remains the same, what is the marginal rate of capital at the new optimal level of input usage?
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133 units
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Let P be the output price for a particular good. Why is the value P*MPL greater than MRPL for a monopolist? A) the monopolist is not as technically efficient as firms operating under perfect competition. B) the monopolist hires less labor so that MPL is higher under a monopoly than under perfect competition. C) the monopolist sets a price that is higher than MR
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B & C
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Which of the following is NOT true about the supply of labor to the firm in a competitive labor market?
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it is upward sloping
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In a competitive labor market, with one variable factor, the supply of labor to the firm is
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equal to the marginal expenditure curve
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What happens to the marginal revenue product curve of a factor as more of a complementary factor is hired?
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it shifts to the right, because its marginal product increases
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Under what circumstances will the economic rent earned by a factor of production always be zero?
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infinitely elastic supply curve
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Suppose a competitive industry produces output Q, using some input i, where the price of the output is PQ and the input price is Pi. Efficient use of resources requires that
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MRPi = Pi
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Suppose the labor market is perfectly competitive, but the output market is not. When the labor market is in equilibrium, the wage rate will:
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equal the marginal revenue product of labor
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Suppose the labor market is perfectly competitive, but the output market is not. When the labor market is in equilibrium, the wage rate will:
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be less than the price times the marginal product of labor
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Suppose the labor market and all the output markets are perfectly competitive. When the labor market is in equilibrium, the wage rate will:
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equal the marginal revenue product of labor
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All of the payment to a factor of production will be economic rent when the factor or production has:
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an infinitely inelastic supply curve
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Under an upward sloping supply curve for land, the economic rents to land ____ as the demand for land shifts rightward
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increase
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Under an infinitely inelastic supply of land, the economic rents to land ____ if the price of land doubles.
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double
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Suppose the local market for legal services has an upward sloping supply curve, PL=150+0.0001QL, where PL is the price of legal services and QL is the number of hours of legal services. If the equilibrium price of legal services is $250 per hour, what is the aggregate economic rent earned by lawyers in this market?
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50,000,000
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Suppose the local market for legal services has an upward sloping supply curve, PL=150+0.0001QL, where PL is the price of legal services and QL is the number of hours of legal services. If the equilibrium price of legal services is $250 per hour and the average number of hours a lawyer works per year is 2500, what is the average economic rent earned per lawyer in this market?
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$20,000
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Suppose the supply of land is infinitely inelastic and the demand for land is downward sloping but inelastic at the current equilibrium. If the supply curve shifts rightward (e.g. previously unusable land is cleared for production), what happens to the aggregate economic rents in this market?
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Decrease
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For a monopsony buyer of an input, the marginal expenditure curve
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lies above the average expenditure curve
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Which of the following is TRUE when comparing monopsony and competitive labor markets?
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the monopsonist's wage and quantity of labor are lower than would prevail under perfect competition
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The marginal expenditure curve for labor is based on the assumption that
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all workers are paid the same wage rate
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Which of the following is true concerning equilibrium in a monopsonistic factor market?
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the firm maximizes profit but doe snot use the efficient level of input.
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In the US, major league baseball is exempt from antitrust laws. Before 1975, the baseball team owners agreed to hold an annual draft of amateur baseball players. Once the players were drafted and signed by a team, they were effectively tied to that team for life. This allowed baseball owners to operate like ____ in the market for player services.
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monopsonistic cartel
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In the US, major league baseball is exempt from antitrust laws. Before 1975, the baseball team owners agreed to hold an annual draft of amateur baseball players. Once the players were drafted and signed by a team, they were effectively tied to that team for life. Before 1975, professional baseball players were paid:
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less than their marginal revenue product
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When contemplating the purchase of a resource, the pure monopsonist should do which of the following to maximize profit?
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purchase enough to make the marginal expenditure equal to the marginal revenue
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If the factor supply curve facing a monopolist is the market supply curve, and if the market supply curve is an upward sloping straight line, the marginal expenditure curve
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lies above the market supply curve
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John's firm is a competitor in your product market and a monopsonist in the labor market. The current market price of the product that your firm produces is $2. The total product and marginal product of labor are given as TP=100L-0.125L2 MP=100-0.25L How much will the monopsonist pay each worker?
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83
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Suppose the price of the product rises to $5, the number of workers hired
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will increase
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Suppose that the price of the product rises to $5. Which of the following curves shift?
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MRP curve
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Suppose that the price of the product rises to $5 and price of labor
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will increase
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Suppose that a subsidy is implemented on each unit of labor hired.Then the number of works hired
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will increase
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Suppose that a pollution tax is imposed on each unit of a firm's output. The number of workers hired
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will decrease
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Suppose that a tax is imposed on each until of product that John produced. Which curve will shift?
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marginal revenue of the product of labor
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There is always some economic rent whenever
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supply of a factor is upward sloping
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Who does not earn economic rent in a competitive factor market?
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the last factor of production hired
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Why doesn't the marginal worker hired earn economic rent in a competitive labor market?
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His reservation wage is equal to the wage.
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Suppose the upward sloping labor supply curve shifts leftward in a labor market with a single employer (monopsony). What happens to the marginal expenditure curve?
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shifts left
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Suppose the upward sloping labor supply curve shifts leftward in a labor market with a single employer (monopsony). What happens to the equilibrium wage and level of employment in the market?
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wage increases and level of employment declines
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Suppose the downward sloping labor demand curve shifts rightward in a labor market with a single employer. What happens to the equilibrium wage and level of employment in the market?
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wage and level of employment increase
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Suppose the downward sloping labor demand curve shifts rightward in a labor market with a single employer. What happens to the marginal expenditure curve?
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remains the same
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A major computer software company maintains a technical support center in a rural area and is the only employer in this region. Suppose the firm develops a new software system for managing technical support calls, the marginal product of labor increases. What happens to the equilibrium outcome in this market?
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labor demand shift rightward, equilibrium wage and employment levels increase
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In the situation involving a bilateral monopoly, a
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single sellers sells to a single buyer
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An example of monopoly power in input markets is
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the United Auto Workers union in the market for auto worker services
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When comparing the market price of an input in a market characterized by bilateral monopoly to perfectly competitive price
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the bilateral monopoly price can be higher than, lower than, or equal to the competitive price
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Suppose a labor market has perfectly inelastic supply that is composed of union and non-union worker, and both groups of workers earn the perfectly competitive wage. What happens to the equilibrium employment level and wage for union workers?
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wage increases and employment declines
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Suppose a labor market has perfectly inelastic supply that is composed of union and non-union workers and both groups of workers earn perfectly competitive wage. What happens to the equilibrium employment level and wage for non-union workers?
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employment increases and wage declines
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Suppose a labor market has perfectly inelastic supply that is composed of union and non-union workers and the union shifts its policy from maximizing total economic rents to maximizing total wages earned by members. What happens to the equilibrium employment level and wage for non-union workers?
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wage increases & employment declines
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I. A positive deadweight loss necessarily occurs in labor markets that have one seller II. The deadweight loss in a labor market with one seller is smaller if the union maximizes the total wages earned by union members than if the union maximizes total economic rents
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I FALSE II TRUE
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Suppose the government allows labor unions to act as the sole seller in labor markets, but the gov collects an annual $10,000,000 administrative fee from each union in this situation. Assuming this fee is not so large that is forces the unions to disband, what is the impact of this fee on the equilibrium wage and employment level in monopolized labor market?
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no change in wages or employment levels
