Questions Page 750 Questions 1 - 25. Please list the letter that best answers the question and give a brief explanation as to why. Explanations can include mathematics, fully labeled graphs, sentences.

19. If a former monopolist in the product market begins to 24. Stonehenge is a prehistoric stone monument that face competition as firms enter the market, the firm's people pay to visit. Since the monument would be there demand curve for labor would whether or not people paid, the payment for visiting a. not change. represents b. become more elastic. a. commodity money. c. become less elastic. b. physical capital. d. show the effects of more rapidly diminishing c. a price ceiling. d. a minimum wage. marginal returns. e. show the effects of less rapidly diminishing marginal e. economic rent. returns. 25. According to the cost-minimization rule, firms should 20. Suppose that a firm is currently producing its desired equate quantity of output and that the firm's marginal product a. the marginal product of each of their inputs. of labor is 20, its marginal product of capital is 100, the b. the price of each of their inputs. wage rate for labor is $5, and the rent for capital is $25. c. the marginal product per dollar spent on each input. All data are per hour. The firm should d. the price of their input and the price of their output. a. employ more labor and rent more capital. e. the marginal factor cost and the marginal product b. employ less labor and rent less capital. of each of their inputs. c. employ less labor and rent more capital. d. employ more labor and rent less capital. Free-Response Questions e. employ the current amount of labor and rent the 1. Kyong and Courtney manage a factory in the toy current amount of capital. airplane industry, which is perfectly competitive in 21. In a perfectly competitive factor market, every unit of both the product market and the factor market. They the factor of production is paid based on the have compiled the following per-day data on worker a. increase in revenue generated by the last unit of the productivity: factor employed in the market. Number of workers b. increase in output generated by the last unit of the 0 1 2 3 4 5 6 Marginal product 6 factor employed in the market. 5 4 3 21 c. average revenue generated by the factor of a. The price of toy airplanes is $100, the wage per production employed in the market. worker is $200, and the rent per machine is $400. d. average output generated by the factor of Assume the firm always produces the profit- production employed in the market. maximizing quantity of airplanes using the cost- e. average revenue generated by all factors of minimizing combination of inputs. If the marginal production employed in the market. product of capital is 4, how many workers do Kyong 22. An individual firm in a competitive labor market has a and Courtney hire? demand curve for labor that is b. Draw a graph of Kyong and Courtney's supply and a. downward-sloping demand curves for labor using the data from part a b. upward-sloping. above. Be sure to indicate the equilibrium wage rate c. horizontal at the level of the product price. and the number of workers hired. Label all curves d. vertical. and axes. e. U-shaped. c. Explain why the demand curve for labor slopes the way it does. 23. Which of the following is an example of physical capital? d. On your factor market graph from part b, show the a. manual labor effect of a decrease in the supply of workers in the b. welding equipment toy airplane industry. Add the subscript "new" to the c. farmland label of anything that changes. (7 points) d. lumber e. education 752 Micro . Unit 5 Factor Markets7. Assume the firm sells its product for $2 each and must UNIT FIVE REVIEW pay each worker $8 per hour. What is the marginal a. $10 revenue product of labor for the second worker? 13. The supply curve for labor slopes downward when d. $60 b. $22 a. the substitution effect outweighs the income effect. e. $176 c. $24 b. the income effect outweighs the substitution effect. c. the substitution effect equals the income effect. 8. Assume the firm sells its product for $2 each and must d. workers experience an overall decrease in wealth. pay each worker $8 per hour. How many workers should e. wage rates are at very low levels. the firm hire in order to maximize profit? 14. The supply curve for labor may shift to the left due to a. 2 workers a. an increase in wealth. b. 3 workers d. 6 workers e. 8 workers b. an increase in the wage rate due to the income effect. c. 5 workers c. a decrease in the wage rate due to the income effect. 9. Which of the following would shift the demand curve d. an increase in the wage rate due to the substitution effect. for labor to the right? e. a decrease in the wage rate due to the substitution a. a decrease in the wage rate effect. b. an increase in the wage rate c. an increase in labor productivity 15. For a monopsony, the marginal factor cost of labor curve lies above the supply curve at every quantity of d. a decrease in the final price of the product produced labor due to e. a decrease in the availability of physical capital per a. diminishing marginal returns. worker b. increasing marginal returns. 10. Suppose a firm produces coffee mugs in a perfectly c. different workers receiving different wage rates. competitive output market. Which of the following d. all workers receiving the same wage rate. would shift the firm's demand curve for labor to the e. decreasing opportunity cost of leisure. left? 16. Compared to a competitive labor market, a firm with a. an increase in the demand for mugs monopsony power in the labor market would pay a b. a decrease in the price of mugs a. higher wage rate and hire more workers. c. a decrease in the availability of workers who make b. higher wage rate and hire fewer workers. c. lower wage rate and hire more workers. mugs d. lower wage rate and hire fewer workers. d. improvements in technology that increase the e. lower wage rate but hire the same amount of marginal product of labor workers. e. an increase in the availability of physical capital per 17. Assume an effective minimum wage is imposed on worker a monopsony labor market, and the minimum wage 11. Suppose a firm hires labor in a perfectly competitive is set below the wage that would exist in a perfectly labor market. If the marginal revenue product is less competitive market. Employment would than the wage, the firm should definitely a. decrease, and there would be unemployment. a. shut down in the short run. b. decrease, and there would be a shortage of workers. b. shut down in the long run. c. increase, but there would be a shortage of workers. c. hire more workers. d. increase, but there would be unemployment. d. hire fewer workers. e. increase, and there would be no shortages or e. not change the number of workers it hires. surpluses of labor. 12. Compared to the supply curve for capital, the supply 18. Assume a firm is operating as a monopolist in the product market and as a perfect competitor in the factor curve for land is market. The firm's demand curve for labor will be a. flatter, more elastic, and more responsive to factor a. horizontal due to the competitive labor market. prices. b. horizontal due to the effects of market power. b. flatter, less elastic, and less responsive to factor c. downward-sloping due to diminishing marginal prices. returns and decreasing marginal revenue. c. steeper, more elastic, and more responsive to factor d. downward-sloping due solely to diminishing prices. marginal returns. d. steeper, less elastic, and less responsive to factor e. downward-sloping due solely to decreasing marginal prices. revenue. e. steeper, more elastic, and less responsive to factor prices, Micro . Unit 5 Review 751Multiple-Choice Questions 5. If marginal product is positive and falling as the firm hires more workers, then 1. The four principal classes of factors of production are a. total product is rising at a decreasing rate. a. money, capital, land, and labor. b. total product is falling at a decreasing rate. b. money, capital, labor, and entrepreneurship. c. average product must be falling. c. money, labor, land, and entrepreneurship. d. the marginal revenue product of labor is increasing d. land, labor, capital, and entrepreneurship. e. the diminishing returns to labor are decreasing. e. land, labor, entrepreneurship, and money. 2. Because it results from the demand for automobiles, the Use the following production data for a firm operating in both a demand for automobile workers is a/an perfectly competitive product market and a perfectly competi- tive factor market to answer Questions 6-8. a. derived demand. b. irrational demand. Number of workers Total output/hour c. elastic demand. 1 10 d. inelastic demand. 2 22 e. unit elastic demand. w 30 3. A firm will continue to employ more land until its 4 36 marginal revenue product of land is 5 40 a. zero. 6 b. maximized. 43 c. equal to the rental rate. 45 d. equal to the wage rate. Co 46 e. equal to the marginal revenue product of labor and capital. 6. Based on the production data above, at what level of employment does the firm begin to experience 4. For a perfectly competitive firm in both the product diminishing marginal returns? market and the factor market, the demand curve for a. There are no diminishing marginal returns. labor slopes downward due to b. 3 workers a. market power. c. 4 workers b. economies of scale. d. 5 workers c. diseconomies of scale. e. 6 workers d. diminishing marginal returns. e. increasing marginal returns. 750 Micro . Unit 5 Factor Markets