ECON 160 Chapter Notes - Chapter 18: Opportunity Cost, Demand Curve, Marginal Product

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redhyena35

12 Dec 2016

School

Binghamton University

Department

Economics

Course

ECON 160

Professor

Susan W.Hanes

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Document Summary

Chapter 18: the markets for the factors of production. Factors of production: the inputs used to produce goods and services. Labor markets are like any other market in the economy: the supply and demand for labor determines the price, or wages, of laborers. A typical firm is competitive and profit maximizing. This is similar when firms are suppliers of goods and consumers of labor. Production function: the relationship between the quantity of inputs used to make a good and the quantity of that good. Marginal product of labor: the increase in the amount of output from an additional unit of labor. Diminishing marginal product: the property whereby the marginal product of an input declines as the quantity of the input increases. Value of the marginal product: the marginal product of an input times the price of the output. Let"s use the example of laborers with a wage of :

Related Questions

1. The slope of the total product curve measures

a. the marginal rate of technical substitution.

b. marginal product.

c. average product.

d. the maximum average product.

e. minimum product.

2. The Law of Diminishing Returns to a variable input (such as labor) assumes that

a. there is at least one fixed input.

b. all inputs are changed by the same percentage.

c. the firm is operating in the short run.

d. all inputs are held constant.

e. a and c.

3. An isoquant curve identifies

a. the maximum output possible, given a fixed budget.

b. the different combinations of goods the can be produced, given fixed amounts of inputs.

c. the different combinations of inputs that can be used to produce a fixed rate of output.

d. none of the above.

4. The ratio of total productivity to the total quantity of a variable input being used in production is

a. equal to marginal physical productivity of the input.

b. constant as employment levels of the input vary.

c. equal to average physical productivity of the input.

d. equal to the marginal rate of technical substitution.

A competitive firmâs short-run demand for labor will rise when the price of its product rises.

	True
	False

As the wage rate rises, the marginal revenue product of labor increases.

	True
	False

A competitive firmâs demand for labor always slopes down in the short-run, but may slope upwards or downwards in the long run.

	True
	False

When labor an capital are complements in production, a higher wage will cause a firm to use more capital in the long run.

	True
	False

If labor is a regressive factor, then a firmâs long-run demand for labor may or may not be downward sloping.

	True
	False

The short-run demand curve for labor for a firm in any type of market for its output coincides with

	the upward-sloping portion of the marginal revenue product curve.
	the downward-sloping portion of the marginal revenue product curve.

	the downward-sloping portion of the marginal product curve.
	the marginal labor cost curve.

An increase in the price of labor will, in the short run, cause a competitive firmâs

	marginal cost to increase, the quantity it sells to decrease, and therefore reduce the quantity of labor demanded.
	price of its output to increase, leaving the quantity of labor demanded unchanged.

	marginal revenue product of labor to decrease, and therefore reduce demand for labor.
	marginal revenue product of labor to increase, and therefore increase demand for labor.

Which of the following would cause the firmâs short-run demand curve for labor to shift to the right?

	A decrease in the wage rate.
	An increase in the price of the firmâs product.

	An increase in the rental rate paid to capital.
	A decrease in the amount of complementary capital available.

If increased capital usage reduces the firmâs short-run demand for labor, then

	labor is a regressive factor.
	labor and capital are complements in production.

	labor and capital are substitutes in production.
	labor is a Giffen factor.

When is the law of demand violated for labor? That is, with regards to the law of labor demand, when does an increase in the wage not lead to a reduction in the quantity of labor demanded?

	Never.
	When the substitution and scale effects are in opposition, with the scale effect being the larger.

	When labor is a regressive factor.
	When labor earns zero economic rent.

If the wage rate rises, then the firmâs long-run marginal costs change, which in turn affects the firmâs output level and its employment of labor. This phenomenon is known as

	the substitution effect.
	the scale effect.

	the regressive-factor effect.
	the factor-price effect.

When will the scale effect of a wage increase cause a reduction in the quantity of labor demanded?

	Always.
	When labor is not a regressive factor.

	When labor and capital are substitutes in production.
	When labor and capital are complements in production.

Consider the usual case where a higher wage rate increases a firmsâ marginal costs. In this case, the industryâs demand curve for labor

	is more wage inelastic than the individual firmsâ demand curves would indicate.
	coincides with the horizontal sum of individual firmsâ demand curves.

	contains only substitution effects but no scale effects.
	is horizontal at the going wage rate.

To maximize profits, a monopolist will hire the quantity of labor at which marginal revenue product of labor

	is downward sloping and equal to the market wage rate.
	is downward sloping and equal to marginal labor cost.

	minus marginal labor cost is maximized.
	is maximized.

A firmâs revenue minus its factor payments equals

	zero.
	the profits or losses earned by the firm.

	the quasi-rents earned by the factors of production.
	the firmâs total revenue.

As the amount of labor used in production increases, total product

	increases at low levels of labor and decreases at higher levels of labor.
	increases at high levels of labor and decreases at low levels of labor.

	always increases.
	always decreases.

A profit-maximizing price taker will produce at a level where

	the wage equals the marginal product of labor.
	the marginal revenue product of labor equals the price of their output.

	the wage rate equals the price of their output.
	the marginal revenue product of labor equals the wage rate.

If the wage rate is $10 per hour and one worker can produce 2 units of output per hour, then the marginal cost of production is

	$5.
	$10.

	$20.
	The answer cannot be determined from the information given.

A firmâs long-run demand for labor is more wage-elastic than its short-run demand for labor.

	True
	False

A monopsonistâs short-run demand curve for labor coincides with its marginal revenue product of labor curve.

	True
	False

Workers will receive higher wages when an employer faces an upward-sloping supply curve for labor.

	True
	False

The profit an owner receives is equivalent to the rent received for her entrepreneurial services.

	True
	False

When high levels of labor are employed, total production tends to increase at a decreasing rate.

	True
	False

The substitution effect on labor always decreases the quantity of labor demanded when the wage rate increases.

	True
	False

A firmâs marginal revenue product of labor equals the marginal product of labor multiplied by the per-unit cost of labor.

	True
	False

Tastes and preferences are relevant to individual choices for consumption but not relevant to choices for supplying labor.

	True
	False

A higher wage will always cause a worker to increase the quantity of labor supplied.

	True
	False

The substitution and income effects of a wage increase both cause consumption to rise.

	True
	False

A workerâs labor supply may either rise or fall when nonlabor income increases, depending on whether the substitution effect or the income effect dominates.

	True
	False

When an increase in marginal productivity increases workersâ nonlabor income, the effect on the quantity of labor supplied is ambiguous/uncertain.

	True
	False

A technological improvement that is permanent is more likely to raise employment than one that is temporary.

	True
	False

Other factors being constant, firms that provide on-the-job training to workers will tend to pay higher wages.

	True
	False

If there is discrimination, employers engage in it a cost.

	True
	False

Human capital tends to increase over the course of a personâs life.

	True
	False

In the indifference curve budget line model of labor supply,

	labor is measured along the horizontal axis and leisure is measured along the vertical axis.
	labor is measured along the horizontal axis and consumption is measured along the vertical axis.

	consumption is measured along the horizontal axis and labor is measured along the vertical axis.
	consumption is measured along the horizontal axis and leisure is measured along the vertical axis.

In the indifference curve budget line model of labor supply, the slope of the indifference curve is used to measure

	the wage rate.
	laborâs marginal product.

	the workerâs nonlabor income.
	the marginal value of leisure.

If a worker has chosen a quantity of labor where the marginal value of leisure exceeds the wage rate, she would be better off by

	choosing less leisure.
	providing fewer hours of labor.

	providing more hours of labor.
	staying at this combination of labor and consumption.

When there is an increase in the wage rate there will be

	both a substitution effect and an income effect.
	only a substitution effect.

	only a substitution effect.
	either a substitution effect or an income effect.

When the wage rate rises, the substitution effect leads a worker to

	increase consumption while the income effect leads to a decrease in consumption.
	decrease consumption while the income effect leads to an increase in consumption.

	increase consumption, as does the income effect.
	substitution sleep for other leisure.

Consider the indifference curve budget line model of labor supply, and assume consumption and leisure are both normal goods. A higher wage rate would result in

	more consumption and less leisure.
	a reduction in the workerâs marginal value of leisure.

	reduced consumption if the income effect is larger than the substitution effect.
	increased labor only if the substitution effect outweighs the income effect.

When the wage rate rises, a worker chooses to replace some leisure hours with work hours, even if he would remain equally well off. This phenomenon is known as

	compensating differential.
	the income effect.

	the substitution effect.
	intertemporal substitution.

Which of the following will shift a workerâs labor supply curve to the left?

	Higher nonlabor income.
	A lower wage rate, assuming the substitution effect dominates the income effect.

	New machinery that substitutes for labor and lowers its marginal product.
	A decrease in the marginal value of leisure.

Which of the following would cause a rightward shift in the labor demand curve?

	Manna from heaven.
	A rise in the wage rate.

	A rise in workersâ marginal productivity.
	A decline in workersâ nonlabor incomes.

When some jobs are inherently more risky or unpleasant than other jobs, different workers will be paid different wages because of

	differences in human capital.
	differing access to capital.

	compensating differentials
	discrimination.

Discrimination is difficult to measure empirically because

	it is hard to measure and control for differences in marginal productivity.
	data on racial and gender differences is rarely available.

	discrimination is practiced by very few employers.
	economists find no significant wage differentials due to gender or race.

Intertemporal substitution dictates that

	people will work less in periods of high productivity.
	people will spend more in periods of high productivity.

	people will work more in periods of high productivity.
	people will spend less in periods of high productivity.

A decrease in the wage rate causes the budget line to

	become flatter.
	become steeper.

	shift upward.
	shift downward.

An increase in the marginal productivity of labor will tend to

	shift the labor supply curve rightward if the change is temporary.
	result in an increase in employment if the change is temporary.

	result in an increase in employment if the change is permanent.
	all of the above.

A downward shift in a workerâs budget line is a result of

	an increase in the wage rate.
	a decrease in the wage rate.

	an increase in nonlabor income.
	a decrease in nonlabor income

One deficiency of the labor-leisure indifference curve analysis is that because indifference curves are always tangent to the workerâs budget line, the model cannot explain why some people choose not to work.

	True
	False

pinkcheetah77

Suppose a firm in a competitive industry faces an equilibrium product price of $2 per unit of output. Table A provides information on the output produced by various amounts of labor. Use this information to complete the remaining columns of Table A, and to fill in the labor demand schedule in Table B.

Table A: Production Schedule Units of Labor Total Product

Units of Labor	Total Product	AP	MP	MRP
0	0
1	13
2	25
3	34
4	42
5	46
6	48

(a) Complete Table A, where AP is the average product of labor, MP is the marginal product of labor, MRP is the marginal revenue product of labor.

(b) Briefly explain why the marginal revenue product of labor (MRP) will be equal to the value of the marginal product of labor (V MP) in this market

Wage Rate	Quantity Demanded
24
16
8

(d) If the equilibrium market wage rate is $8, what is the equilibrium quantity of labor hired by the firm?

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ECON 160 Chapter Notes - Chapter 18: Opportunity Cost, Demand Curve, Marginal Product

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