Unec 1642279358

1) Which of the following groups lists the four factors of production?
A) labor, capital, land, entrepreneurship

B) labor, capital, land, money
C) labor, money, land, entrepreneurship
D) labor, capital, money, entrepreneurship
Answer: A
Topic: Factors of Production
Skill: Recognition
AACSB: Reflective Thinking
2) Profit is the factor price for ________ .

A) capital
B) land
C) entrepreneurship
D) labor
Answer: C
Topic: Factor Prices and Incomes
Skill: Recognition
1
Copyright © 2010 Pearson Education, Inc.
1) The demand for a productive resource, not for its own sake, but for use in the production of
goods and services is called a ________.
A) goods and services demand
B) production demand
C) derived demand
D) resource demand
Answer: C
Topic: Derived Demand
Skill: Recognition
3) The demand for labor is a derived demand because it is derived from

A) the supply of labor.
B) union pressure.
C) the demand for the output the labor produces.
D) natural law.
Answer: C
Skill: Recognition
2
5) The demand for the services of labor ________ a derived demand and the demand for the
services of land ________ a derived demand.
A) is; is
B) is; is not
C) is not; is
D) is not; is not
Answer: A
Skill: Conceptual
8) The change in total revenue that results from employing one more unit of labor is called the
A) wage rate.
B) value of marginal product of labor.
C) average revenue.
D) marginal product of labor.
Answer: B
Topic: Value of Marginal Product
Skill: Recognition
3
9) The value of marginal product (VMP) of an input such as labor is the
A) additional output produced by the last unit of an input.
B) total revenue divided by the units of the input employed.
C) extra revenue gained by selling one more unit of output.
D) extra revenue gained by employing one more unit of the input.
Answer: D
Skill: Recognition
4
5
21) The value of marginal product equals ________ multiplied by ________.
A) price; marginal cost
B) price; marginal product
C) marginal cost; marginal product
D) marginal revenue; total product
Answer: B
Skill: Recognition
23) In the short run, as the quantity of labor employed by a firm decreases , labor's ________
increases.
A) marginal cost
B) value of marginal product
C) marginal revenue
D) average cost
Answer: B
Skill: Conceptual
26) For a perfectly competitive firm, the value of marginal product diminishes as employment
increases because the
A) price falls as total product increases.
B) marginal revenue decreases as total product increases.
C) marginal product decreases as total product increases.
D) None of the above answers is correct.
Answer: C
Skill: Conceptual
29) Sam's Scarves has 2 knitting machines and employs 2 people. They produce 15 scarves a
day. If the firm hires an additional person, the 3 workers can produce 19 scarves a day other
things remaining the same. The market for scarves is perfectly competitive and the price of a
scarf is $20. The value of marginal product of the third worker is ________.
A) $80
B) $300
C) $380
D) 4 scarves
Answer: A
Skill: Analytical
6
AACSB: Analytical Skills
30) When Sam's Scarves uses 2 knitting machines and employs 3 people, total revenue is $330 a
day. When Sam's Scarves uses 2 knitting machines and employs 4 people, total revenue is $360 a
day. The value of marginal product of the third worker is ________.
A) $110
B) $30
C) $360
D) $90
Answer: B
Skill: Analytical
7
Output
Labor
(gallons of
(workers)
gasoline)
0 0
1 100
2 180
3 240
4 280
5 300
31) Sun's Gas Station is a firm operating in a perfectly competitive industry. Sun's Gas Station
sells each gallon of gas for $3. What is the total revenue earned by selling 180 gallons of gas?
A) $240
B) $540
C) $840
D) $3,300
Answer: B
Topic: Total Revenue
Skill: Analytical
32) Sun's Gas Station is a firm operating in a perfectly competitive industry. Sun's Gas Station
sells each gallon of gas for $3. What is the value of marginal product from hiring the fourth
worker?
A) $2,400
B) $840
C) $120
D) $60
Answer: C
Skill: Analytical
8
Quantity of
Total revenue Total product
labor
(dollars) (units of output)
(workers)
0 0 0
1 20 5
2 36 9
3 48 12
4 56 14
5 60 15
33) In the table above, the marginal product of the first unit of labor is ________ units of output.
A) 4
B) 5
C) 16
D) 20
Answer: B
Topic: Marginal Product
Skill: Analytical
34) In the table above, the marginal product of the third unit of labor is ________ units of output.
A) 3
B) 4
C) 12
D) 16
Answer: A
Skill: Analytical
35) In the table above, the value of marginal product of the third unit of labor is
A) $3.
B) $4.
C) $12.
D) $16.
Answer: C
Skill: Analytical
9
36) In the table above, the firm producing the product is
A) a monopoly.
B) an oligopoly.
C) a duopoly.
D) perfectly competitive.
Answer: D
Skill: Analytical
37) In the table above, if the wage rate is $8.00 per hour, the profit-maximizing number of
workers is
A) 1.
B) 2.
C) 4.
D) 5.
Answer: C
Topic: Profit Maximization
Skill: Analytical
38) In the table above, if the wage rate is $12.00 per hour, the profit-maximizing number of
workers is
A) 2.
B) 3.
C) 4.
D) 5.
Answer: B
Skill: Analytical
39) A firm in a competitive labor market will hire labor until the value of marginal product of
labor equals the
A) firm's marginal revenue.
B) firm's marginal cost.
C) firm's average cost.
D) wage rate.
Answer: D
Skill: Conceptual
10
41) To maximize profit, a firm hires the quantity of labor that makes the ________ of labor equal
to the ________.
A) value of marginal product; wage rate
B) total revenue; total cost of labor
C) marginal product; total cost of labor
D) marginal product; marginal revenue
Answer: A
Skill: Recognition
42) Which of the following is a condition for maximum profit?

A) VMP = W.
B) VMP = MC.
C) MP = W.
D) MC = W.
Answer: A
Skill: Recognition
11
51) If the value of marginal product of a factor of production exceeds the price of the factor the
A) firm should hire more of that factor.
B) firm should hire less of that factor.
C) firm is maximizing profits.
D) firm should shut down.
Answer: A
Skill: Conceptual
12
52) If a firm finds that the wage rate (W) is less than the value of marginal product (VMP), then
to maximize its profit the firm should hire
A) less labor, which will increase the VMP.
B) more labor, which will decrease the VMP.
C) no more or less labor, because profits are greatest when W < VMP.
D) more labor, because hiring more labor will increase both W and VMP until they are equal.
Answer: B
Skill: Conceptual
53) A perfectly competitive firm facing a competitive labor market will hire more labor
whenever
A) its average revenue product of labor exceeds the wage rate.
B) the wage rate exceeds its average revenue product of labor.
C) its value of marginal product of labor exceeds the wage rate.
D) the wage rate exceeds its value of marginal product of labor.
Answer: C
Skill: Conceptual
13
Total Product
Labor
(car washes
(workers)
per day)
0 0
1 25
2 45
3 60
4 70
5 75
55) Winnie's Car Wash is a perfectly competitive firm. The table above shows Winnie's total
product schedule. What is the marginal product of labor when the 5th worker is hired?
A) 72.5 car washes
B) 75 car washes
C) 5 car washes
D) 3 car washes
Answer: C
Skill: Analytical
product schedule. If the price of a car wash is $4, what is the value of marginal product of the 4th
worker?
A) $240
B) $70
C) $10
D) $40
Answer: D
Skill: Analytical
product schedule. If the price of a car wash is $4, what is the value of marginal product of the
second worker?
A) $80
B) $20
C) $30
D) $180
Answer: A
Skill: Analytical
14
product schedule. If the price of a car wash is $5, what is the value of marginal product of the 4th
worker?
A) $300
B) $50
C) $70
D) $10
Answer: B
Skill: Analytical
product schedule. If the price of a car wash is $5, what is the value of marginal product of the
second worker?
A) $100
B) $20
C) $30
D) $125
Answer: A
Skill: Analytical
product schedule. If the price of a car wash is $4 and the wage rate is $50 per day, how many
workers should Winnie employ to maximize his profit?
A) 1
B) 2
C) 3
D) 4
Answer: C
Skill: Analytical
15
product schedule. If the price of a car wash is $4 and the wage rate is $70 per day, how many
A) 1
B) 2
C) 3
D) 4
Answer: B
Skill: Analytical
product schedule. If the price of a car wash is $5 and the wage rate is $62.50 per day, how many
A) 2
B) 3
C) 4
D) 5
Answer: B
Skill: Analytical
product schedule. If the price of a car wash is $5 and the wage rate is $37.50 per day, how many
A) 2
B) 3
C) 4
D) 5
Answer: C
Skill: Analytical
16
product schedule. If the price of a car wash is $4, and Winnie maximizes his profit when he
employs 3 workers, the wage rate is
A) $25 per day.
B) $30 per day.
C) $70 per day.
D) $50 per day.
Answer: D
Skill: Analytical
product schedule. If the price of a car wash is $4, and Winnie maximizes his profit when he
employs 4 workers, the wage rate is
A) $90 per day.
B) $30 per day.
C) $70 per day.
D) $50 per day.
Answer: B
Skill: Analytical
Output
Labor
(haircuts per
(workers)
day)
0 0
1 24
2 36
3 44
4 48
5 50
66) The above table has the total product schedule for Joe's Barber Shop. Joe charges $6 per
haircut. The firm's value of marginal product of labor for the third worker is equal to
A) $264.
B) $48.
C) $8.
D) $6.
Answer: B
Skill: Analytical
17
haircut. If the wage rate is $24 per worker, what quantity of labor will maximize profits?
A) 1 worker
B) 2 workers
C) 4 workers
D) 5 workers
Answer: C
Skill: Analytical
haircut. If the wage rate falls from $24 per worker to $12 per worker, the quantity of labor hired
________ and the new number of workers employed is ________.
A) increases; 2
B) decreases; 2
C) increases; 5
D) increase; 3
Answer: C
Skill: Analytical
Quantity of Value of marginal

Output Total revenue
labor product
(units) (dollars)
(workers) (dollars)
0 0 0 0
1 10 100 100
2 18 80 180
3 24 60 240
4 28 40 280
5 30 20 300
69) Based on the production and revenue data in the above table, what is the marginal product of
the 4th worker?
A) 28
B) 6
C) 4
D) 2
Answer: C
Skill: Analytical
18
70) Based on the production and revenue data in the above table, what is the price of the
product?
A) $100
B) $10
C) $1
D) More information is needed to determine the price of the product.
Answer: B
Skill: Analytical
71) Based on the production and revenue data in the above table, if the wage rate is $20 per
worker, how many workers will be hired?
A) 5
B) 4
C) 3
D) 2
Answer: A
Skill: Analytical
72) Based on the production and revenue data in the above table, if the wage rate is $35 per
worker, how many workers will be hired?
A) 5
B) 4
C) 3
D) 2
Answer: B
Skill: Analytical
19
Quantity of Marginal
Output
labor product
(groomings)
(workers) (groomings)
0 0
1 12 12
2 20 8
3 25 5
4 28 3
5 30 2
73) Doug's Dog Grooming is a perfectly competitive firm charging $5 per dog grooming. Doug's
Dog Grooming has the total and marginal product of labor schedules in the above table and can
hire workers from a perfectly competitive labor market for $15 per hour. What is the value of
marginal product of the third worker?
A) $5
B) $25
C) $15
D) $375
Answer: B
Skill: Analytical
74) Doug's Dog Grooming is a perfectly competitive firm charging $5 per dog grooming. Doug's
Dog Grooming has the total and marginal product of labor schedules in the above table and can
hire workers from a perfectly competitive labor market for $15 per hour. The profit-maximizing
level of employment for Doug's Dog Grooming is
A) 1 worker.
B) 2 workers.
C) 4 workers.
D) 6 workers.
Answer: C
Skill: Analytical
20
Labor Quantity of donuts
(workers) (dozens per hour)
0 0.0
1 5.0
2 10.0
3 17.5
4 22.5
5 25.0
75) Daniel owns the Donut Deli. The table shows the hourly total product of Donut Deli. The
doughnut market is perfectly competitive and the market price of a dozen donuts is $4. When
Daniel increases the number of employees from 2 to 3, value of marginal product of labor
________.
A) increases to $30
B) increases to $20
C) decreases to $10
D) does not change
Answer: A
Skill: Analytical
76) Daniel owns the Donut Deli. The table above gives Donut Deli's hourly total product
schedule. The doughnut market is perfectly competitive and the market price of a dozen donuts is
$4. If the labor market is competitive and the market wage rate is $15 an hour, Daniel hires
________.
A) 4 workers an hour
B) as many workers as possible
C) 3 workers an hour
D) an average of 4.5 workers an hour
Answer: A
Skill: Analytical
21
Output
Labor
(pounds of bricks
(workers)
per hour)
0 0
1 10
2 16
3 19
4 21
5 22
77) The table above shows the number of pounds of bricks that can be produced by the Red
Brick Company as the number of workers hired increases. The brick market is perfectly
competitive and each pound of bricks sells for $20. The labor market is competitive and the
wage rate is $30 an hour. When the Red Brick Company maximizes its profit, it produces
________ bricks an hour.
A) 19
B) 21
C) 22
D) 10
Answer: B
Skill: Analytical
78) The firm's demand for labor is derived directly from ________.
A) the wage rate
B) the supply of labor
C) labor's cost
D) labor's value of marginal product
Answer: D
Topic: Value of Marginal Product and the Demand for Labor
Skill: Recognition
79) A firm's demand for labor curve is the same as the firm's
A) marginal product curve.
B) marginal cost curve.
C) marginal revenue curve.
D) value of marginal product curve.
Answer: D
Skill: Recognition
22
80) Which correctly describes the relationship between the demand for labor curve and the value
of marginal product curve?
A) The curves intersect to determine the equilibrium quantity of labor.
B) The value of marginal product curve lies to the right and above the demand for labor curve.
C) The curves are the same.
D) The value of marginal product curve lies to the left of the demand for labor curve.
Answer: C
Skill: Recognition
81) A firm's demand for labor curve is

A) the same as its value of marginal product curve.
B) steeper than its value of marginal product curve.
C) flatter than its value of marginal product curve.
D) usually positively sloped.
Answer: A
Skill: Recognition
82) The firm's demand for labor curve is the same as the firm's
A) total revenue curve.
B) marginal revenue curve.
C) average revenue product curve.
D) value of marginal product curve.
Answer: D
Skill: Recognition
83) A firm's demand for labor curve

A) shows how much labor the firm will hire at different wage rates.
B) is always steeper than the value of marginal product curve.
C) is always flatter than the value of marginal product curve.
D) is usually positively sloped.
Answer: A
Topic: Demand for Labor Curve
Skill: Recognition
23
84) A firm's demand for labor curve
A) is the same as its value of marginal product of labor curve.
B) shows how many jobs the firm demands at different wage rates.
C) shifts rightward when the price of the firm's output falls.
D) None of the above answers are correct.
Answer: A
Skill: Recognition
24
103) If the price revenue of dog grooming increased, then number of workers hired by Doug's
Dog Grooming would
A) decrease.
B) increase.
C) remain unchanged.
D) Any of the above answers are possible.
Answer: B
Topic: Changes in the Demand for Labor; Price of Output
Skill: Conceptual
25
104) If demand for the firm's product increases so that the price rises, then the firm's demand for
labor
A) decreases.
B) increases.
C) remains unchanged.
D) No prediction is possible without more information.
Answer: B
Skill: Conceptual
105) Which of the following would explain why Josh's Limo Service might increase its demand
for limo drivers?
A) A rise in the price of a limo ride.
B) A decrease in the demand for limo rides.
C) A fall in the price of a taxi ride.
D) A rise in the wage paid to limo drivers.
Answer: A
Skill: Conceptual
106) An increase in the price of a firm's output increases the firm's demand for labor because the
A) marginal product of each worker increases.
B) value of marginal product of each worker increases.
C) value of marginal product curve becomes steeper.
D) value of marginal product curve becomes flatter.
Answer: B
Skill: Conceptual
26
Quantity of
Output
labor
(pounds)
(workers)
0 0
1 1000
2 1800
3 2400
4 2800
107) The preceding table gives monthly production information for Peter's Peanuts, a firm in a
perfectly competitive industry. The market price of peanuts is $2.00 per pound. What is the
marginal product from employing the fourth worker?
A) 7 pounds of peanuts
B) 100 pounds of peanuts
C) 400 pounds of peanuts
D) 2,800 pounds of peanuts
Answer: C
Skill: Conceptual
perfectly competitive industry. The market price of peanuts is $2.00 per pound. What is the value
of marginal product from employing the third worker?
A) $800
B) $1,200
C) $2,000
D) $4,800
Answer: B
Skill: Analytical
perfectly competitive industry. The market price of peanuts is $2.00 per pound. If a worker costs
$800 per month, how many workers will Peter employ to maximize profit?
A) zero
B) one
C) two
D) four
Answer: D
Skill: Analytical
27
perfectly competitive industry. Initially the market price of peanuts is $2.00 per pound. If the
market price of peanuts fall to $1 per pound and a worker costs $800 per month, how many
workers will Peter employ to maximize his profit?
A) zero
B) two
C) three
D) four
Answer: B
Skill: Analytical
perfectly competitive industry. The market price of peanuts is $2.00 per pound. A worker costs
$1,200 per month. How many workers does Peter hire to maximize his profit?
A) zero
B) one
C) three
D) four
Answer: C
Skill: Analytical
perfectly competitive industry. An increase in the wage rate for labor leads to
A) an increase in the quantity of labor demanded.
B) a decrease in the quantity of labor demanded.
C) an increase in the demand for labor.
D) a decrease in the demand for labor.
Answer: B
Topic: Changes in the Demand for Labor; Wage Rate
Skill: Recognition
28
113) The figure above shows a local lawn cutting service's demand for labor curve when the
price of cutting an acre of lawn is $50 per acre. If the market wage is $300 per day, the firm will
NOT hire a fourth worker because the fourth worker would create
A) an economic loss and the firm would shut down.
B) additional revenue that exceeds the worker's wage.
C) additional revenue that exceeds the worker's value of marginal product.
D) additional revenue that falls short of the worker's wage.
Answer: D
Skill: Conceptual
price of cutting an acre of lawn is $50 per acre. How much labor will the firm hire if the market
wage is $300 per day?
A) 0 workers
B) 1 worker
C) 2 workers
D) 3 workers
Answer: D
Skill: Analytical
29
price of cutting an acre of lawn is $50 per acre. If the wage rate rises from $100 per day to $200
per day, the firm's demand for labor curve
A) shifts leftward.
B) shifts rightward.
C) does not shift at all, but the firm moves upward along the curve.
D) None of the above because this change shifts the supply of labor curve.
Answer: C
Topic: Changes in the Demand for Labor; Wage Rate
Skill: Conceptual
price of cutting an acre of lawn is $50 per acre. If the price of lawn cutting rises to $60 per acre
of lawn cut, the firm's demand for labor curve
A) shifts rightward.
B) shifts leftward.
C) does not shift at all, but the firm moves upward along the curve.
D) None of the above because this change shifts the supply of labor curve.
Answer: A
Skill: Analytical
117) The demand for labor decreases (that is, the demand for labor curve shifts leftward) if the
A) wage rate increases.
B) wage rate decreases.
C) price of the firm's output rises.
D) prices of other factors fall.
Answer: D
Topic: Changes in the Demand for Labor; Prices of Other Factors
Skill: Conceptual
118) A firm's demand for labor increases and its demand curve for labor shifts rightward if
A) the wage rate falls.
B) the price of its product falls.
C) its value of marginal product decreases.
D) an advance in technology increases the marginal product of labor.
Answer: D
Topic: Changes in the Demand for Labor; Technology
Skill: Conceptual
30
119) A new technology that increases the marginal product of labor shifts the
A) demand for labor curve leftward.
B) demand for labor curve rightward.
C) supply of labor curve leftward.
D) supply of labor curve rightward.
Answer: B
Skill: Conceptual
120) New technology

A) definitely increases a firm's demand for labor.
B) definitely decreases a firm's demand for labor.
C) definitely does not change a firm's demand for labor.
D) could increase or decrease a firm's demand for labor.
Answer: D
Skill: Conceptual
121) A new technology that lowers the marginal product of labor ________ the equilibrium
wage rate and ________ the equilibrium quantity of labor.
A) raises; increases
B) raises; decreases
C) lowers; increases
D) lowers; decreases
Answer: D
Skill: Analytical
122) A company finds that for the next worker hired, the worker's VMP is less than the cost of
the worker. In this case, to maximize its profit the company should
A) definitely hire the worker.
B) perhaps hire the worker, depending on the relationship between the company's MC and MR.
C) definitely not hire the worker.
D) None of the above answers is correct.
Answer: C
Topic: Study Guide Question, Profit Maximization
Skill: Conceptual
31
123) A firm's price rises. As a result, the
A) supply of labor to the firm decreases, that is, the labor supply curve shifts leftward.
B) supply of labor to the firm increases, that is, the labor supply curve shifts rightward.
C) demand for labor by the firm increases, that is, the labor demand curve shifts rightward.
D) demand for labor by the firm decreases, that is, the labor demand curve shifts leftward.
Answer: C
Topic: Study Guide Question, Changes in the Demand for Labor
Skill: Conceptual
124) Suppose the price of oranges rises. As a result, the

A) supply of orange pickers increases.
B) supply of orange pickers decreases.
C) demand for orange pickers increases.
D) demand for orange pickers decreases.
Answer: C
Topic: Study Guide Question, Changes in the Demand for Labor
Skill: Conceptual
47) The figure above shows the labor demand and labor supply curves for workers in local fast-
food restaurants. The fast-food restaurant industry is competitive. A decrease in the supply of
labor shifts the labor supply curve from LS0 to LS1. Fast-food restaurants hire ________ and
total labor income earned by the fast-food workers ________.
A) 40 hours of labor a day; increases
B) 30 hours of labor a day; decreases
C) 40 hours of labor a day; decreases
D) 30 hours of labor a day; increases
32
Answer: D
Topic: Labor Market Equilibrium
Skill: Analytical
33
1) Which of the following changes the demand for capital and shifts the demand curve for
capital?
A) current income
B) expected future income
C) the rental rate
D) the marginal product of capital
Answer: D
Topic: Changes in the Demand for Capital
Skill: Recognition
2) The price which adjusts to make the quantity of capital supplied equal to the quantity
demanded is the
A) rate of economic profit.
B) ge rate.
C) rental rate.
D) rate of normal profit.
Answer: C
Topic: The Capital Market
Skill: Recognition
34
3) A technological change that raises the value of marginal product of capital ________ the
capital rental rate because the ________.
A) raises; supply curve of capital shifts leftward
B) lowers; supply curve of capital shifts rightward
C) raises; demand curve for capital shifts rightward
D) lowers; demand curve for capital shifts leftward
Answer: C
Topic: Capital Market Equilibrium
Skill: Analytical
35

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1) Which of the following groups lists the four factors of production?

A) labor, capital, land, entrepreneurship

2) Profit is the factor price for ________ .

3) The demand for labor is a derived demand because it is derived from

42) Which of the following is a condition for maximum profit?

Quantity of Value of marginal

81) A firm's demand for labor curve is

83) A firm's demand for labor curve

120) New technology

124) Suppose the price of oranges rises. As a result, the

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