ECN 104 Lecture Notes - Lecture 13: Marginal Utility, Marginal Revenue, Imperfect Competition
6 Jun 2018
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Chapter11TheDemandforFactorsofProduction
[Copyright(c)2010McGraw-HillRyersonLimited Page1
CHAPTER 11 The Demand for Factors of
Production
Topic Question numbers
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11.1 Factor pricing and demand 1-106
Marginal productivity theory of factor demand 1-106
11.2 Determinants of factor demand 107-149
Changes in product demand 107-115
Changes in productivity 116-119
Changes in the prices of other factors 120-149
11.3 Elasticity of factor demand 150-172
Elasticity of factor demand 150-156
Ease of factor substitutability 157-161
Elasticity of product demand 162-167
Ratio of factor cost to total cost 168-172
11.4 Optimal combination of factors 173-223
The least-cost rule 173-187
The profit-maximizing rule 188-196
Numerical illustration 197-214
Marginal productivity theory of income distribution 215-223
The last word 224-228
True-false 229-245
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Chapter11TheDemandforFactorsofProduction
Copyright (c) 2010 McGraw-Hill Ryerson Limited. Page 2
1. Factor pricing is important because:
A) factor prices are a major determinant of money incomes.
B) factor prices allocate scarce factors among alternative uses.
C) factor prices, along with factor productivity, are important to firms in minimizing
their costs.
D) of all of the above reasons.
Ans: D Level: Easy Main Topic: 11.1 Factor pricing and demand Page: 268
Subtopic: Marginal productivity theory of factor demand Type: Application
2. Which of the following statements best illustrates the concept of derived demand?
A) As income goes up the demand for farm products will increase by a smaller relative
amount.
B) A decline in the price of margarine will reduce the demand for butter.
C) A decline in the demand for shoes will cause the demand for leather to decline.
D) When the price of gasoline goes up, the demand for motor oil will decline.
Ans: C Level: Moderate Main Topic: 11.1 Factor pricing and demand
Page: 268 Subtopic: Marginal productivity theory of factor demand
Type: Application
3. In a perfectly competitive factor market, a firm that hires labour is a:
A) "price maker."
B) "wage taker."
C) "money maker."
D) "product taker."
Ans: A Level: Easy Main Topic: 11.1 Factor pricing and demand Page: 268
Subtopic: Marginal productivity theory of factor demand Type: Definition
4. When economists say that the demand for labour is a derived demand, they mean that the
demand for labour is:
A) dependent on government expenditures for public goods and services.
B) related to the demand for the product or service labour is producing.
C) based on the desire of businesses to exploit labour by paying below equilibrium
wage rates.
D) based on the assumption that workers are trying to maximize their money incomes.
Ans: B Level: Easy Main Topic: 11.1 Factor pricing and demand Page: 268
Subtopic: Marginal productivity theory of factor demand Type: Definition
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Chapter11TheDemandforFactorsofProduction
Copyright (c) 2010 McGraw-Hill Ryerson Limited. Page 3
5. The demand for airline pilots results from the demand for air travel. This fact is an
example of:
A) factor substitutability.
B) rising marginal factor cost.
C) elasticity of factor demand.
D) derived demand for labour.
Ans: D Level: Easy Main Topic: 11.1 Factor pricing and demand Page: 268
Subtopic: Marginal productivity theory of factor demand Type: Application
6. The demand for capital by a firm is based on the demand for the product that the capital
produces. This relationship is referred to as:
A) product demand.
B) derived demand.
C) factor utilization.
D) cost minimization.
Ans: B Level: Easy Main Topic: 11.1 Factor pricing and demand Page: 268
Subtopic: Marginal productivity theory of factor demand Type: Definition
7. An increase in the demand for computers leads to an increase in demand for computer
programmers. This situation arises because:
A) programmers minimize the costs of production.
B) the supply of programmers has decreased.
C) the demand for programmers is a derived demand.
D) of producer sovereignty in factor markets.
Ans: C Level: Easy Main Topic: 11.1 Factor pricing and demand Page: 268
Subtopic: Marginal productivity theory of factor demand Type: Application
8. We say that the demand for labour is a "derived demand" because:
A) labour is a necessary input in the production of every good or service.
B) we demand the product which labour helps produce rather than labour service
per se.
C) the forces of supply and demand do not apply directly to labour markets.
D) labour is hired using the MRP = MRC rule.
Ans: B Level: Easy Main Topic: 11.1 Factor pricing and demand Page: 268
Subtopic: Marginal productivity theory of factor demand Type: Definition
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Document Summary
Changes in the prices of other factors h. Marginal productivity theory of income distribution z l. Chapter 11 the demand for factors of production: factor pricing is important because: D) factor prices are a major determinant of money incomes. factor prices allocate scarce factors among alternative uses. factor prices, along with factor productivity, are important to firms in minimizing their costs. of all of the above reasons. Subtopic: marginal productivity theory of factor demand type: application: which of the following statements best illustrates the concept of derived demand, as income goes up the demand for farm products will increase by a smaller relative amount. A decline in the price of margarine will reduce the demand for butter. B: a decline in the demand for shoes will cause the demand for leather to decline, when the price of gasoline goes up, the demand for motor oil will decline. h.
