Principles of Microeconomics, 8e (Case/Fair) Chapter 10: Input Demand: The Labor and Land Markets
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- Refer to the information provided in Figure 10.2 below to answer the questions that follow.
- Refer to the information provided in Figure 10.3 below to answer the questions that follow.
Figure 10.1 18) Refer to Figure 10.1. This firm is currently hiring 16 workers and paying a wage of $10. This firm should A) do nothing because it is maximizing profits. B) reduce employment to 15 workers to increase profits. C) reduce employment to 14 workers to increase profits. D) increase employment to 17 workers to increase profits. Answer: B Diff: 3 Type: C 19) A firm will continue hiring labor as long as the MRP of labor __________ the market wage rate. A) is greater than or equal to B) is less than C) is equal to D) determines Answer: A Diff: 1 Type: F 20) The marginal cost of a unit of labor in a perfectly competitive labor market is A) its average MRP. B) equal to product price. C) the market wage rate. D) equal to MRP. Answer: C Diff: 1 Type: F 21)
Tony's Lawn Service uses only one variable input, fertilizer. The firm's demand curve for fertilizer in the short run is the input's A) total product curve. B) marginal product curve. C) marginal revenue product curve. D) total cost curve. Answer: C Diff: 1 Type: F 22) You have been hired by a data processing firm to provide economic advice. The owner of the firm tells you that the firm's only variable input is the number of data-entry operators. The hourly wage for data-entry operators is $15.00. The marginal revenue product curve for data-entry operators reaches its maximum at three workers with a marginal revenue product of $12.00. What advice would you give this firm? A) Hire three data-entry operators so as to minimize the amount of money the firm will lose. B) Shut down immediately, as the firm is not able to cover all of its variable costs. C) Increase the wage rate paid to data-entry operators so that their marginal revenue product will increase. D) Produce as much as possible so as to maximize the difference between the wage paid to data-entry operators and their marginal revenue product. Answer: B Diff: 3 Type: C 23) Firms will employ an input up to the point where A) the wage rate equals the productivity of capital. B) its marginal cost equals its marginal product. C) the input's price equals its marginal revenue product. D) the input's price equals its marginal product. Answer: C Diff: 1 Type: F 24) Liu's Potato Chips is a perfectly competitive firm currently employing 30 workers. The marginal revenue product of the 30th worker is $7.00 per hour. The wage rate is $8.00 per hour. To increase profits, this firm should A) decrease employment until the MRP of labor equals $8.00. B) increase employment until the MRP of labor equals $8.00. C) continue hiring 30 workers because the firm earns a surplus of $1.00 on each worker hired. D) increase the price of potato chips so that the marginal revenue product increases to $8.00 per hour. Answer: A Diff: 3 Type: C 25)
If the supply of labor decreases, which of the following events will occur? A) The wage rate will fall and firms will increase employment up until the point where MRP equals the new wage rate. B) The wage rate will fall and firms will decrease employment to the point where MRP equals the new wage rate. C) The wage rate will increase and firms will decrease employment to the point where MRP equals the new wage rate. D) The wage rate will increase and firms will increase employment up until the point where MRP equals the new wage rate. Answer: C Diff: 3 Type: C 26) If Tie-Dyed T-Shirts is currently employing labor so that the wage is less than the marginal revenue product of labor, it must also be true that A) total revenues would be greater than total costs. B) the wage is greater than marginal cost. C) the price of the product must be less than marginal cost. D) the price of the product must be greater than marginal cost. Answer: D Diff: 3 Type: C 27) Assume that labor is the only variable input and that the payment made to labor is denoted as W. The marginal product of labor can be stated as A) (W) × MC). B) W/MC. C) MC/W. D) TC/W. Answer: B Diff: 3 Type: D 28) If the wage rate is less than the marginal revenue product of labor, the firm should __________ to maximize profits. A) hire less labor and produce less output B) hire less labor and produce more output C) hire more labor and produce less output D) hire more labor and produce more output Answer: D Diff: 3 Type: C Refer to the information provided in Figure 10.2 below to answer the questions that follow. 
Figure 10.2 29) Refer to Figure 10.2. This firm's marginal cost curve has shifted from MC0 to MC1. A likely explanation for this is that A) the productivity of a variable input declined. B) the price of a variable input decreased. C) the demand for the firm's product decreased. D) the supply of a variable input decreased. Answer: B Diff: 3 Type: C 30) Refer to Figure 10.2. This firm's marginal cost curve has shifted from MC0 to MC1 A profit-maximizing firm should ________ the amount of output produced and _________ its demand for labor. A) increase; increase B) increase; decrease C) decrease; decrease D) keep constant; increase Answer: A Diff: 3 Type: C 31) If capital and labor are complementary inputs and the firm increases the amount of capital employed in production, the marginal revenue product of labor will A) decrease. B) increase. C) remain constant because the amount of labor was not changed. D) either increase, decrease or remain constant depending on how complementary labor and capital are in production. Answer: B Diff: 1 Type: F Refer to the information provided in Figure 10.3 below to answer the questions that follow. 
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