ECO101H1 Chapter Notes - Chapter 18: Marginal Revenue Productivity Theory Of Wages, Marginal Product, Demand Curve

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Chapter 18 - the markets for the factors of production. Factors of production: the inputs used to produce goods and services. Labour, land and capital are the 3 most important fop. Main difference: the demand for a factor of production is derived from its decision to supply a good in another market. Labour markets are different from most other markets because labour demand is derived from demand. Assume that the firm is competitive in both the market where the firm is a seller and in the market where the firm is a buyer. Assume that the firm is profit-maximizing, thus the firm does not directly care about the number of workers it has or the number of units it produces, it only cares about profit. The firm"s supply of units and its demand for workers are derived from its primary goal of maximizing profit.

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1. In a perfectly competitive industry, an individual firm faces:

a. a perfectly elastic labour supply curve

b. a perfectly inelastic labour supply curve

c.a perfectly vertical labour supply curve

d.none of the above

2. A firm purchases more capital equipment. We would expect to observe:

a. an increase in the supply of labour for this firm

b. a decrease in the supply curve of labour for this firm

c.an increase in the wage rate paid for labour by this firm

d.an increase in the demand for labour by this firm

3. Which of the following would be h most likely outcome if all perfectly competitive firms in a product market join together to form a monopoly?

a. the rate of output in the market will increase but the quantity of labour input will decrease

b.both the rate of output and the quantity of labour input employed will increase

c.the rate of output in the market will decrease but the quantity of labour input will increase

d.both the rate of output and the quantity of labour input employed will decrease

4. what does the marginal revenue product equal when 28 workers are hired in one week?

Labor input (workers per week)__Marginal physical product (output per week)__marginal revenue

25_______________________150_________________________________9.00

26_______________________140_________________________________8.50

27_______________________130_________________________________8.00

28_______________________120_________________________________7.50

29_______________________110________________________________7.00

a. $210

b.$7.50

c.$900

d.$1040

5. The profit-maximizing firm will hire additional workers until:

a. the extra revenue by the last workers hired equals zero

b.the extra cost associated with hiring the last worker equals the price of goods produced

c.the additional cost associated with hiring the last worker equals the average wage rate of workers

d.the additional cost associated with hiring the last worker equals the additional revenue generated by that worker.

rosehyena631

17. All of the following can raise union member wages except:

a. limiting union membership over time

b. increasing the demand for non-union made goods

c. increasing the productivity of union workers

d. increasing the demand for union-made goods

12. If a firm wants to maximize its profits, it should

a. equates the marginal revenue product for each input to the price of the input

b.hire unskilled labour rather than skilled labour since unskilled labour is cheaper

c. hire lots of capital and very little labour since labour needs to be trained

d. equate the marginal physical product for each input to the price of the input

10. A profit-maximizing monopolist will hire labour up to the point where

a. marginal revenue equals than the wage rate.

b. marginal revenue product is greater than the wage rate.

c. marginal revenue equals the price of the product.

d. marginal revenue product is less than the wage rate.

9. The practice of outsourcing has been given a boost by:

a. firms that are becoming more risk-averse.

b. advances in telecommunications and computer networking.

c. support from organized labour.

d.sharp increases in the cost of overseas labour.

8. Suppose firms in an industry hire unskilled labour and skilled labour. unskilled labour is a substitute for capital and skilled labour is a complement with capital. A decrease in the real price of capital would:

a. cause the demand for unskilled labour to increase and the demand for skilled labour to decrease. the wage of unskilled labour would rise relative to the wage of skilled labour

b. cause the demand for both kinds of labour to decrease. wages rates of both kinds of labour would decrease too.

c. cause the demand for labour to increase, raising wages of both skilled and unskilled labour.

d. cause the demand for unskilled labour to decrease and the demand for skilled labour to increase. the wage of unskilled labour would decrease relative to the wage of skilled labour.

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11. In your later studies in economics, you will Supply Curve of Labour learn that supply curves for labour can be "backward bending" (that is, can be negatively sloped if a rise in the wage rate leads workers to want to work less in order to take more vacations and more leisure time). Such a supply curve is represented at the right, where w is the wage rate per hour and L is the number of hours of labour. The demand curve for labour (representing the number of hours of labour demanded by firms which hire these workers) can be assumed to be downward sloping, as usual in this course. Which of the following statements about the stability of this situation is (are) generally true? 1) This labour market will be stable if the demand curve is flatter than the supply curve. In This labour market is inherently unstable. III) This labour market will be stable if a rise in wages Icads to excess supply of hours of work. A) only! B) only II C) only III DI & II (E) & III F) II & III G) I, II & III ) none of the three L

ECO101H1 Chapter Notes - Chapter 18: Marginal Revenue Productivity Theory Of Wages, Marginal Product, Demand Curve

ECO101H1 Full Course Notes

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