25 The CHAPTER Demand for Resources Topic 1. Derived demand 2. Resource demand curve; optimal hiring 3.

Determinants of resource demand 4. Elasticity of resource demand 5. Optimal combination of resources 6. Marginal productivity theory of income distribution Consider This Last Word True-False Multiple Choice Questions Derived demand Question numbers 1-8 9-59 60-97 98-114 115-145 146-149 150-151 152-154 155-170 _______________________________________________________________________ ____________________________ _______________________________________________________________________ ____________________________ Econ: 489 LO: 25-1 Micro: 255 Topic: 1 Type: Fact 1. Resource pricing is important because: A) resource prices are a major determinant of money incomes. B) resource prices allocate scarce resources among alternative uses. C) resource prices, along with resource productivity, are important to firms in minimizing their costs. D) of all of the above reasons. Ans: D Econ: 489 LO: 25-2 Micro: 255 Topic: 1 Type: Application of a Concept 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 Econ: 489 LO: 25-2 Micro: 255 Topic: 1 Type: Definition 3. When economists say that the demand for labor is a derived demand, they mean that it is: A) dependent on government expenditures for public goods and services. B) related to the demand for the product or service labor is producing. C) based on the desire of businesses to exploit labor by paying below equilibrium wage rates. D) based on the assumption that workers are trying to maximize their money incomes. Ans: B Econ: 489 LO: 25-2 Micro: 255 Topic: 1 Type: Application of a Concept 4. The demand for airline pilots results from the demand for air travel. This fact is an example of: A) resource substitutability. C) rising marginal resource cost. B) elasticity of resource demand. D) the derived demand for labor. Ans: D Econ: 489 LO: 25-2 Micro: 255 Topic: 1 Type: Definition 5. We say that the demand for labor is a derived demand because: A) labor is a necessary input in the production of every good or service. B) we demand the product that labor helps produce rather than labor service per se. C) the forces of supply and demand do not apply directly to labor markets. D) labor is hired using the MRP = MRC rule. Ans: B Econ: 489 LO: 25-2 Micro: 255 Topic: 1 Type: Application of a Concept 6. The demand for a resource depends primarily on: A) the

supply of that resource. B) the demand for the product or service that it helps produce. C) the price of that input. D) the elasticity of supply of substitute inputs. Ans: B Econ: 489 LO: 25-2 Micro: 255 Status: New Topic: 1 Type: Application of a Concept 7. The demand for labor is derived from: A) the demands for other variable inputs. B) the costminimization rule. C) consumer demand for the product or service it is helping to produce. D) the supply of related inputs. Ans: C Econ: 489 LO: 25-2 Micro: 255 Topic: 1 Type: Application of a Concept 8. In the United States professional football players earn much higher incomes than professional soccer players. This occurs because: A) most football players are good soccer players while the reverse is not true. B) consumers have a greater demand for football games than for soccer games. C) football and soccer games are highly substitutable products for most consumers. D) the marginal productivity of soccer players exceeds that of football players. Ans: B Resource demand curve; optimal hiring Econ: 490 LO: 25-2 Micro: 256 Topic: 2 Type: Definition 9. Marginal revenue product measures the: A) amount by which the extra production of one more worker increases a firm's total revenue. B) decline in product price that a firm must accept to sell the extra output of one more worker. C) increase in total resource cost resulting from the hire of one extra unit of a resource. D) increase in total revenue resulting from the production of one more unit of a product. Ans: A McConnell: Economics, 17/e, Test Bank 1 Page 151 Econ: 490491 LO: 25-2 Micro: 256-257 Topic: 2 Type: Application of a Concept 10. The marginal revenue product schedule is: A) the same whether the firm is selling in a purely competitive or imperfectly competitive market. B) the firm's resource demand schedule. C) the firm's resource supply schedule. D) upsloping. Ans: B Econ: 490 LO: 25-5 Micro: 256 Topic: 2 Type: Application of a Concept 11. The purely competitive employer of resource A will maximize the profits from A by equating the: A) price of A with the MRP of A. B) marginal productivity of A with the price of A. C) marginal productivity of A with the MRC of A. D) price of A with the MRC of A. Ans: A Econ: 490-491 LO: 25-2 Micro: 256-257 Topic: 2 12. The MRP curve for labor: A) intersects the firm's labor demand curve from above. B) is the firm's labor demand curve. C) lies below the firm's labor demand curve. D) lies above the firm's labor demand curve. Ans: B Type: Application of a Concept Econ: 490 LO: 252 Micro: 256 Status: New Topic: 2 Type: Definition 13. Marginal product is: A) the output of the least skilled worker. B) a worker's output multiplied by the price at which each unit can be sold. C) the amount an additional worker adds to the firm's total output. D) the amount any given worker contributes to the firm's total revenue. Ans: C Econ: 491

Ans: C Econ: 490 LO: 25-2 Micro: 256 Topic: 2 Type: Application of a Concept 16. C) 18. D) data given do not permit the determination of the marginal revenue product of either worker. C) the wage rate is less than MP. Ans: B Econ: 490 LO: 25-5 Micro: 256 Topic: 2 Type: Application of a Concept 22. By hiring a second barber at the same wage rate the shop can now provide a total of 42 haircuts per day. The MRP of the second barber: A) is 18. D) MC exceeds MR. If the product sells for $6 per unit in a purely competitive market. the: A) marginal revenue product of each worker is $25. B) $108. 17/e. D) 42. Test Bank 1 Page 152 B) marginal revenue product of the first worker is $20. If one worker can pick $30 worth of grapes and two workers together can pick $50 worth of grapes. Jones should: A) hire the second . B) $12. Refer to the above information. C) wage rate equals product price. Assume labor is the only variable input and that an additional input of labor increases total output from 72 to 78 units. Refer to the above information. D) slopes downward because of diminishing marginal utility. Ans: C Use the following to answer questions 20-22: Answer the next question(s) on the basis of the following information: Jones owns a barber shop and charges $6 per haircut. B) is $108. C) is 42. D) $72. C) $36. Ans: B Econ: 490 LO: 25-5 Micro: 256 Topic: 2 Type: Application of a Concept 15. C) MRP = MRC. Ans: C Econ: 490 LO: 25-5 Micro: 256 Topic: 2 Type: Application of a Concept 17. Ans: A Econ: 490 LO: 25-5 Micro: 256 Topic: 2 Type: Application of a Concept 18. The MP of the second barber is: A) $240. A competitive employer should hire additional labor as long as: A) the MRP exceeds the wage rate. B) average product exceeds MP. A firm will find it profitable to hire workers up to the point at which their: A) marginal resource cost equals their wage rate. By hiring one barber at $10 per hour the shop can provide 24 haircuts per 8-hour day. B) Resource price equals product price. Econ: 490 LO: 25-2 Micro: 256 Topic: 2 Type: Application of a Concept 20. the MRP of this additional worker is: A) $6. A profit-maximizing firm employs resources to the point where: A) MRC = MP. B) slopes downward because of diminishing marginal productivity. Ans: D Econ: 490 LO: 25-5 Micro: 256 Topic: 2 Type: Application of a Concept 19. Ans: C Econ: 490 LO: 25-2 Micro: 256 Topic: 2 Type: Application of a Concept 21. D) is $24. D) marginal resource cost is equal to their MRP. C) marginal revenue product of the second worker is $20. The labor demand curve of a purely competitive seller: A) slopes downward because the elasticity of demand is always less than unity.LO: 25-2 Micro: 257 Topic: 2 Type: Application of a Concept 14. Refer to the above information. B) MP is equal to their MRP. McConnell: Economics. D) MP = product price. C) is perfectly elastic at the going wage rate.

C) horizontal at the "going" wage rate. D) product demand schedule. B) supply of labor is inelastic. Assume the Apex Manufacturing company is purely competitive in both the hiring of labor and in the sale of its product. Apex's labor demand curve would be: A) vertical at the current level of employment. D) not hire the second barber because he will diminish profits. Test Bank 1 Page 153 Econ: 491 LO: 25-2 Micro: 257 Topic: 2 23. Ans: D Econ: 491 LO: 25-2 Micro: 257 Topic: 2 Type: Application of a Concept 25. At what price does each shoe shine sell? A) $1 B) $2 C) $3 D) $2. B) hire the second barber because he will add $108 to profits. labor) in the profitmaximizing amount is MRC = MRP. Assume . D) firm is hiring labor under imperfectly competitive conditions. its only variable input. How many units of output are produced when 2 workers are employed? A) 4 B) 16 C) 24 D) 10 Ans: C Econ: 490 LO: 25-2 Micro: 256 Topic: 2 Type: Table 27. 17/e. Shoe shines are also sold competitively. B) marginal revenue product schedule. If the wage rate is $11. C) firm is hiring labor under purely competitive conditions. then what will be his economic profit? A) $62 B) $42 C) $28 D) $32 Ans: D Econ: 490-491 LO: 25-5 Micro: 256-257 Topic: 2 Type: Application of a Concept 31.barber because he will add $28 to profits. Refer to the above data.50 Ans: C Econ: 491 LO: 25-5 Micro: 257 Topic: 2 Type: Table 29. Ans: A McConnell: Economics. the total cost of which is $30. Ans: C Type: Application of a Concept C) marginal resource cost schedule. The general rule for hiring any input (say. U n it s o f la b o r 0 1 2 3 4 5 6 7 T o ta l p rod u ct 0 14 30 35 39 44 2 M a r g in a l product 14 10 T o ta l revenu e $ 42 90 117 126 132 Econ: 490 LO: 25-2 Micro: 256 Topic: 2 Type: Table 26. Refer to the above data. What is the marginal product of the sixth worker? A) 2 units B) 3 units C) 4 units D) 5 units Ans: B McConnell: Economics. Test Bank 1 Page 154 Econ: 491 LO: 25-2 Micro: 257 Topic: 2 Type: Table 28. Ans: C Use the following to answer questions 26-30: Answer the next question(s) on the basis of the following information for Manfred's Shoe Shine Parlor. This rule takes the special form W = MRP (where W is the wage rate) when the: A) labor supply curve is upsloping. The labor demand schedule is identical with the: A) marginal product schedule. D) downward sloping. C) not hire the second barber because he is less productive than the first barber. Econ: 491 LO: 25-2 Micro: 257 Topic: 2 Type: Application of a Concept 24. how many workers will Manfred hire to maximize profits? A) 1 B) 2 C) 3 D) 5 Ans: D Econ: 491 LO: 25-2 Micro: 257 Topic: 2 Type: Table 30. Refer to the above data. Refer to the above data. Assume Manfred hires labor. If Manfred's only fixed input is capital. B) upward sloping. 17/e. Refer to the above data. under purely competitive conditions.

Ans: B Econ: 490 LO: 25-2 Micro: 256 Topic: 2 Type: Definition 37. B) 2 workers. it will employ: A) 1 worker. Ans: B Use the following to answer questions 32-35: Answer the next question(s) on the basis of the information given in the following table: E m p lo y m e n t 0 1 2 3 4 5 6 T o ta l p rod u ct 0 12 22 30 36 40 42 P rod u ct p r ic e $3 3 3 3 3 3 3 Econ: 490 LO: 25-2 Micro: 256 Topic: 2 Type: Table 32. it will employ: A) 2 workers. Ans: A McConnell: Economics. Test Bank 1 Page 155 Econ: 490-491 LO: 25-5 Micro: 256-257 Topic: 2 Type: Table 33. D) 4 workers. Ans: D Econ: 490 LO: 25-2 Macro: Micro: 256 Status: Topic: 2 Type: Table 35. If the firm is hiring workers under purely competitive conditions at a wage rate of $22. D) hiring workers in an imperfectly competitive market. 17/e. D) 5 workers. its resource demand curve can be determined by: A) multiplying total product by product price. D) the change in total revenue associated with the employment of one more unit of the resource. C) hiring workers in a purely competitive market. Ans: B McConnell: Economics.that a restaurant is hiring labor in an amount such that the MRC of the last worker is $16 and her MRP is $12. Refer to the above data. Ans: C Econ: 490 LO: 25-5 Micro: 256 Topic: 2 Type: Table 34. B) selling its product in an imperfectly competitive market. Refer to the above data. C) dividing total revenue by marginal product. D) the restaurant is maximizing profits. This firm is: A) selling its product in a purely competitive market. B) the increase in total resource cost associated with the hire of one more unit of the resource. B) profits will be increased by hiring fewer workers. Assume that the firm is hiring labor in . On the basis of this information we can say that: A) profits will be increased by hiring additional workers. Assuming a firm is selling its output in a purely competitive market. C) marginal revenue product must exceed average revenue product. Marginal resource cost is: A) the increase in total resource cost associated with the production of one more unit of output. B) multiplying marginal product by product price. C) 4 workers. Refer to the above data. D) comparing marginal product with various possible input prices. 17/e. Which of the following best represents the labor demand schedule for this firm? (a ) (b ) (c) (d ) WR Qd WR Qd WR Qd WR Qd $35 1 $35 2 $35 3 $40 1 29 2 29 3 29 4 35 2 23 3 23 4 23 5 30 3 17 4 17 5 17 6 25 4 Ans: A Econ: 490 LO: 25-2 Micro: 256 Topic: 2 Type: Application of a Concept 36. C) 3 workers. B) 3 workers. C) total resource cost divided by the number of inputs employed. Refer to the above data. If the firm is hiring workers under purely competitive conditions at a wage rate of $10. Test Bank 1 Page 156 Use the following to answer questions 38-40: Answer the next question(s) on the basis of the data contained in the following table.

a purely competitive market. 17/e. Ans: D McConnell: Economics. C) the marginal products of successive workers can be sold at higher prices.2 0 1 . B) both because of diminishing returns and the necessity to lower price to sell more output. If the wage rate is $20. Refer to the above data. D) the law of diminishing returns is not applicable to this firm. Other things equal. B) the firm is selling its product in an imperfectly competitive market. Ans: B Econ: 491 LO: 25-2 Micro: 257 Topic: 2 Type: Application of a Concept 44. The labor demand curve of an imperfectly competitive seller is downward sloping: A) solely because of diminishing marginal utility.6 0 1 . U n its o f la b o r 0 1 2 3 4 5 6 T o ta l p rod u ct 0 15 28 39 48 55 60 P rod u ct p r ic e $ 2 . B) be subject to increasing marginal productivity. D) be more elastic than that of a purely competitive seller. C) there is no level of output at which this firm can operate at a profit. The above data reveal that: A) the firm is selling its product in a purely competitive market. but not the purely competitive seller. but not the imperfectly competitive seller. B) the imperfectly competitive seller. Ans: B Econ: 491-492 LO: 25-2 Micro: 257-258 Topic: 2 Type: Application of a Concept 41. Other things the same.2 0 2 . we would expect the labor demand curve of a purely competitive seller to be: A) of .8 0 1 . If a firm is selling in an imperfectly competitive product market. then: A) average product will be less than marginal product for any number of workers hired. The MRP curve is the resource demand curve for: A) neither the purely competitive nor the imperfectly competitive seller. C) solely because product price must be reduced to sell more output. C) be less elastic than that of a purely competitive seller.0 0 1 . the resource demand curve of an imperfectly competitive seller will: A) lie below its marginal revenue product curve. C) the purely competitive seller. how many workers will the firm choose to employ? A) 5 B) 4 C) 3 D) 2 Ans: C Econ: 491-492 LO: 25-2 Micro: 257-258 Topic: 2 Type: Table 40. D) solely because of diminishing returns. D) the marginal products of successive workers can be sold at a constant price. Refer to the above data.1 0 Econ: 491-492 LO: 25-5 Micro: 257-258 Topic: 2 Type: Table 38. Ans: B Econ: 492 LO: 25-4 Micro: 258 Topic: 2 Type: Application of a Concept 45. D) both the purely competitive and imperfectly competitive seller.4 0 1 . B) the marginal products of successive workers must be sold at lower prices. Ans: C Econ: 492 LO: 25-2 Micro: 258 Topic: 2 Type: Application of a Concept 42. how many workers will the firm choose to employ? A) 5 B) 4 C) 3 D) 2 Ans: D Econ: 491-492 LO: 25-5 Micro: 257-258 Topic: 2 Type: Table 39. If the wage rate is $11. Test Bank 1 Page 157 Econ: 491-492 LO: 25-2 Micro: 257-258 Topic: 2 Type: Application of a Concept 43.

B) decline less rapidly than that of a purely competitive seller. The MRP curve for labor: A) is downsloping and shows the relationship between wage rates and the quantity of labor demanded. we would expect the labor demand curve of a monopolistic seller to: A) decline more rapidly than that of a purely competitive seller. Ans: C Econ: 490 LO: 25-2 Micro: 256 Topic: 2 Type: Application of a Concept 51. C) is perfectly elastic because the firm is hiring an insignificant portion of the total labor supply. The labor demand curve of a purely competitive seller: A) slopes downward because the firm must lower price to sell more output. C) less elastic than that of an imperfectly competitive seller. C) a purely competitive and an imperfectly competitive producer will both hire less labor. 17/e. Ans: A Econ: 492 LO: 25-5 Micro: 258 Topic: 2 Type: Application of a Concept 50. B) more elastic than that of an imperfectly competitive seller. The marginal revenue product of any input is the: A) cost of an additional unit of that input. Test Bank 1 Page 158 B) is perfectly elastic if the firm is selling its output competitively. B) an imperfectly competitive producer will hire less labor. C) decline at the same rate as that of a purely competitive seller. Ans: D Use the following to answer questions 52-55: Answer the next question(s) on the basis of the following information. B) marginal revenue product. D) be more elastic than that of a purely competitive seller. B) added profits resulting from the use of one more unit of that input. C) marginal revenue. D) an imperfectly competitive producer may find it profitable to hire either more or less labor. C) is upsloping and lies above the labor supply curve. D) additional revenue resulting from the use of one more unit of that input. B) slopes downward because labor productivity increases as successive workers are hired. Ans: B Econ: 492 LO: 25-2 Micro: 258 Topic: 2 Type: Application of a Concept 46. Ans: A Econ: 490 LO: 25-2 Micro: 256 Topic: 2 Type: Definition 47. Ans: C Econ: 491 LO: 25-2 Micro: 257 Topic: 2 Type: Application of a Concept 48. A farmer who has fixed amounts of land and capital finds that total . Other things equal. D) slopes downward because the marginal product of successive workers declines. D) average revenue product. C) additional output resulting from the use of one more unit of that input. D) perfectly elastic. Ans: D Econ: 491 LO: 25-2 Micro: 257 Topic: 2 Type: Application of a Concept 49. but a purely competitive producer will not. If the wage rate increases: A) a purely competitive producer will hire less labor. D) will shift location when the wage rate changes. but an imperfectly competitive producer will not. McConnell: Economics. The change in a firm's total revenue that results from the hire of an additional worker is measured by: A) marginal product.unitary elasticity.

Test Bank 1 Page 159 Econ: 490 LO: 25-5 Micro: 256 Topic: 2 Type: Application of a Concept 56. 17/e. Refer to the above information. B) adding marginal revenue to total product as one more unit of labor is employed. B) should hire more labor. A firm is hiring the profit-maximizing amount of an input when: A) AVC = MC. C) $15. The marginal product of the second worker is: A) 24. C) multiplying marginal product by product price. B) $8. This firm: A) should hire more labor because this will increase profits. Test Bank 1 Page 160 Econ: 493 LO: 25-3 Micro: 259 Topic: 3 Type: Graphical 60. Ans: D Econ: 490 LO: 25-2 Micro: 256 Topic: 2 Type: Application of a Concept 58. although this may either increase or decrease profits. Ans: B Econ: 490 LO: 25-2 Micro: 256 Topic: 2 Type: Application of a Concept 53. The marginal revenue product of the second worker is: A) $24. and 40 when four are hired. Ans: C Econ: 490 LO: 25-2 Micro: 256 Topic: 2 Type: Application of a Concept 59. the marginal revenue product of labor can be found by: A) adding marginal product to total product as one more unit of labor is employed. B) adding marginal revenue to total product as one more unit of labor is employed. B) MP = MRC. C) is currently hiring the profit-maximizing amount of labor. D) MRP = MRC. C) 5. For a firm selling its product in a purely competitive market. 37 when three are hired. D) 1. B) 8. D) multiplying marginal product by marginal revenue. D) is selling its product in an imperfectly competitive market. Econ: 490 LO: 25-2 Micro: 256 Topic: 2 Type: Application of a Concept 52. For a firm selling its product in an imperfectly competitive market. D) $9. Refer to the above information. 32 when two workers are hired. What is the farmer's profitmaximizing output? A) 20 B) 32 C) 37 D) 40 Ans: C McConnell: Economics. the marginal revenue product of labor can be found by: A) adding marginal product to total product as one more unit of labor is employed. Refer to the above information. Ans: A Econ: 490 LO: 25-5 Micro: 256 Topic: 2 Type: Application of a Concept 54. D) dividing marginal product by product price. Ans: A Econ: 490 LO: 25-5 Micro: 256 Topic: 2 Type: Application of a Concept 57. Ans: D Determinants of resource demand Use the following to answer questions 60-67: W a g e ra te a b D 1 D 2 D 3 0 Q u a n tity o f la b o r McConnell: Economics. A competitive employer is using labor in such an amount that labor's MRP is $10 and its wage rate is $8. How many workers should the farmer hire? A) 1 B) 2 C) 3 D) 4 Ans: C Econ: 490 LO: 25-5 Micro: 256 Topic: 2 Type: Application of a Concept 55. The farmer's product sells for $3 per unit and the wage rate is $13 per worker. Refer to the above information.product is 24 for the first worker hired. An . Refer to the above graph. C) multiplying marginal product by product price. C) MRC = MR. 17/e.

Refer to the above graph. D) move from b to a on D1. B) move from a to b along labor demand curve D1. B) an increase in the wage rate. C) shift from labor demand curve D3 to D2. B) move from a to b along labor demand curve D1. Other things equal. Refer to the above graph. Refer to the above graph. D) move from b to a on D1. assuming that the substitution effect exceeds the output effect. C) law of increasing opportunity costs. D) move from b to a along labor demand curve D1. Ans: C Econ: 493 LO: 25-3 Micro: 259 Topic: 3 Type: Graphical 61. Ans: B Econ: 494 LO: 25-3 Micro: 260 Topic: 3 Type: Graphical 65. C) shift from D2 to D3. B) move from a to b on D1. 17/e.increase in the quantity of labor demanded (as distinct from an increase in demand) is shown by the: A) shift from labor demand curve D1 to D2. Test Bank 1 Page 161 B) shift from D2 to D3 assuming the output effect exceeds the substitution effect. An increase in labor demand (as distinct from an increase in the quantity of labor demanded) is shown by the: A) shift from labor demand curve D1 to D2. a decrease in the price of a substitute resource would cause a(n): A) move from a to b on D1. Ans: A Econ: 493 LO: 25-3 Micro: 259 Topic: . B) shift from D3 to D2. an increase in the price of substitute resource would cause a(n): A) shift from D2 to D3 assuming the substitution effect exceeds the output effect. C) shift from labor demand curve D3 to D2. Ans: B Econ: 490 LO: 25-3 Micro: 256 Topic: 3 Type: Graphical 63. an increase in the price of a complementary resource would cause a(n): A) move from a to b on D1. A move from b to a along labor demand curve D1 would result from: A) a decrease in the price of a substitute resource. D) law of diminishing returns. Refer to the above graph. D) an increase in the demand for the product that this labor is helping to produce. Ans: B Econ: 494 LO: 25-3 Micro: 260 Topic: 3 Type: Graphical 67. B) principal-agent problem. Ans: D Econ: 493 LO: 25-3 Micro: 256 Topic: 3 Type: Graphical 64. an increase in labor productivity would cause a(n): A) move from a to b on D1. Refer to the above graph. D) shift from D3 to D2 assuming the substitution effect exceeds the output effect. Ans: C Econ: 494 LO: 25-3 Micro: 260 Topic: 3 Type: Graphical 66. B) shift from D3 to D2. McConnell: Economics. C) a decrease in the wage rate. Refer to the above graph. D) move from b to a along labor demand curve D1. D) move from b to a on D1. Other things equal. C) shift from D3 to D2 assuming the output effect exceeds the substitution effect. Other things equal. Other things equal. Refer to the above graph. C) shift from D2 to D3. Each of the three labor demand curves shown slopes downward because of the: A) law of diminishing marginal utility. C) move from b to a on D1. Ans: A Econ: 493 LO: 25-3 Micro: 259 Topic: 3 Type: Graphical 62.

D) the adoption of a more efficient method of combining labor and capital in the production process. as a result. C) shift the demand curve for A to the right. Ans: B Type: Application of a Concept Econ: 494 LO: 25-3 Micro: 260 Topic: 3 Type: Application of a Concept 75. B) shift the demand curve for A to the left. Ans: B Econ: 493 LO: 25-3 Micro: 259 Topic: 3 74.3 Type: Application of a Concept 68. If the price of labor falls relative to the price of . resulting in an increased price of strawberries. Assume the price of capital falls relative to the price of labor and. As it relates to strawberry pickers. Which of the following will not shift the demand curve for labor? A) the use of a larger stock of capital with the labor force. Ans: A Econ: 495 LO: 25-3 Micro: 261 Topic: 3 Type: Application of a Concept 73. we could expect the: A) MRP curve to shift to the right. C) MRP curve to shift to the left. B) is perfectly elastic if the firm is selling its product in a purely competitive market. B) a change in the wage rate. B) the output effect is greater than the substitution effect. Ans: B Econ: 493 LO: 25-3 Micro: 259 Topic: 3 Type: Application of a Concept 72. B) the price of the good being produced declines. D) the price of a complementary resource rises. Employers will hire more units of a resource if: A) the price of the resource increases. D) MP curve to shift downward. Which of the following will not cause a shift in the demand for resource X? A) a decline in the price of resource X B) an increase in the price of the product resource X is producing C) a decrease in the price of substitute resource Y D) an increase in the productivity of resource X Ans: A Econ: 494 LO: 25-3 Micro: 260 Topic: 3 Type: Application of a Concept 70. D) is the same as its marginal product curve. the demand for labor increases. McConnell: Economics. B) MRC curve to shift downward. A decline in the price of resource A will: A) increase the demand for complementary resource B. Suppose the demand for strawberries rises sharply. C) the productivity of the resource increases. D) the substitution effect is greater than the output effect. Therefore: A) capital is very highly substitutable for labor. Ans: A Econ: 494 LO: 25-3 Micro: 260 Status: New Topic: 3 Type: Application of a Concept 71. C) the income effect is greater than the output effect. D) reduce the demand for complementary resource B. 17/e. Assume that a firm's production technique is such that varying combinations of labor and capital can be used to produce output. Test Bank 1 Page 162 C) reflects a direct relationship between the number of workers hired and the money wage rate. Ans: A Econ: 495 LO: 25-3 Micro: 261 Topic: 3 Type: Application of a Concept 69. C) an increase in the price of the product which labor is helping to produce. The labor demand curve of a firm: A) will shift to the left if the price of the product the labor is producing falls.

Suppose complementary inputs A and B are being used by a firm in the profit-maximizing amounts. B) solely the result of the output effect. C) less of B because of the substitution effect. Ans: C Econ: 494 LO: 25-3 Micro: 260 Topic: 3 Type: Application of a Concept 76. C) an increase in the price of A will increase the demand for B. C) an increase in the price of one will reduce the demand for the other. Ans: B Econ: 494 LO: 25-3 Micro: 260 Topic: 3 Type: Application of a Concept 80. The output effect occurs: A) only when wage elasticity of demand is greater than 1. McConnell: Economics. C) only when the inputs being employed are substitutes. an increase in the price of capital will cause a firm to use: A) more labor as a consequence of the substitution effect. B) an increase in the price of A may either increase or decrease the demand for B. Test Bank 1 Page 163 B) an increase in the price of one will increase the demand for the other. D) less labor as a consequence of the output effect. D) a decline in the price of one will increase the demand for the other. C) less labor as a consequence of the substitution effect. D) the result of neither the substitution nor the output effect. Ans: D Econ: 494 LO: 25-3 Micro: 260 Topic: 3 Type: Definition 81. this decision is: A) solely the result of the substitution effect. If two resources are highly substitutable for one another: A) a decrease in the price of one will increase unit costs of production. D) only when the inputs being employed are complementary. If technology dictates that labor and capital must be used in fixed proportions. If the price of A now increases. C) more of those inputs whose marginal productivity is the greatest. provided the substitution effect exceeds the output effect. B) more of all inputs if production costs fall. C) probably the result of both the substitution and output effects. D) less of an input whose . B) more of B because of the substitution effect. B) more labor as a consequence of the output effect. Ans: D Econ: 494 LO: 25-3 Micro: 260 Topic: 3 Type: Application of a Concept 78. the firm should use: A) more of B. Ans: B Econ: 494 LO: 25-3 Micro: 260 Topic: 3 Type: Application of a Concept 79. Ans: D Econ: 494 LO: 25-3 Micro: 260 Topic: 3 Type: Application of a Concept 77. B) because a change in the price of a resource will alter costs and therefore the equilibrium output. D) less of B because of the output effect.capital and the firm decides to use more labor in the production process. D) an increase in the price of A will decrease the demand for B. 17/e. The substitution effect indicates that a profit-seeking firm will use: A) more of an input whose price has fallen and less of other inputs in producing a given output. If resources A and B are complementary and employed in fixed proportions: A) a change in the price of A will have no effect on the quantity of B employed.

price has fallen and more of other inputs in producing a given output. D) decrease solely because of the output effect. C) are always substitutable. C) idea of derived demand. Assume the price of capital doubles and. as a result. B) greater. D) law of diminishing returns. conversely. D) are both normal inputs. Suppose capital and labor are used in fixed proportions so that each machine requires only one worker. Ans: C Type: Application of a Concept Econ: 494 LO: 25-3 Micro: 260 Topic: 3 Type: Complex Analysis 88. B) may be either complementary or substitutable. Ans: C Econ: 494 LO: 253 Micro: 260 Topic: 3 Type: Application of a Concept 83. C) negative. D) the demand for capital is highly price elastic. the consequent output effect would be: A) greater. D) law of diminishing returns. B) the firms are producing an inferior good. C) idea of derived demand. Thus a fall in the price of capital will increase the relative price of labor and thereby reduce the demand for labor. Thus a decline in the price of capital will reduce production costs. If the price of capital declines. Ans: B Econ: 494 LO: 25-3 Micro: 260 Topic: 3 Type: Application of a Concept 85. This implies that: labor A) is not readily substitutable for capital. Ans: A McConnell: Economics. B) substitution effect. provided the output effect exceeds the substitution effect. Ans: A Econ: 494 LO: 25-3 Micro: 260 Topic: 3 87. then the demand for labor will: A) decline solely because of the substitution effect. D) of consequence only if capital and labor are used in fixed proportions. The demand curve for labor would shift leftward as the result of: A) an increase in the price of the product labor is producing. Test Bank 1 Page 164 Econ: 493 LO: 25-3 Micro: 259 Topic: 3 Type: Application of a Concept 84. A firm will employ more of an input whose relative price has fallen and. and thereby increase the demand for labor. This describes the: A) output effect. C) the law of diminishing returns is not applicable. C) an increase in the price of labor. B) substitution effect. the less elastic the demand for the product. Ans: B Econ: 494 LO: 25-3 Micro: 260 Topic: 3 Type: Application of a Concept 86. D) a decrease in the price of capital. 17/e. firms make no change in the relative quantities of capital and labor they employ. This describes the: A) output effect. Ans: A Econ: 494 LO: 25-3 Micro: 260 Topic: 3 Type: Application of a Concept 82. C) increase solely because of the output effect. the more elastic the demand for the product. B) a decrease in the productivity of labor. Capital and labor: A) are always complementary. increase the profit-maximizing output. If a decline in the price of capital occurs. will use less of an input whose relative price has risen. A change in an input price will alter both production costs and the profitmaximizing output. B) increase solely because of the substitution effect. Ans: A Econ: 495 LO: 25-3 Micro: 261 Topic: .

3 Type: Complex Analysis 89. B) capital and labor being substitute inputs. We can predict that: A) the firm will use relatively more capital and relatively less labor. C) inputs of capital and labor will be unchanged. increases. McConnell: Economics. decreases. the demand for labor increases. D) diminishing returns being applicable to capital but not to labor. A manufacturer using both capital and labor decides to use more labor and less capital because of an increase in the price of capital. simultaneously. Ans: C Econ: 494 LO: 25-3 Micro: 260 Topic: 3 Type: Application of a Concept 90. C) the output effect being greater than the substitution effect. Suppose a technological improvement increases the productivity of a firm's capital and. Ans: B Econ: 494 LO: 25-3 Micro: 260 Status: New Topic: 3 Type: Complex Analysis 93. the price of capital. Suppose the price of the product that labor is producing increases and simultaneously the price of capital. As a result. its workers' union negotiates a wage increase. A change in the price of an input will usually: A) shift a firm's cost curves. Suppose the productivity of labor increases and at the same time the price of capital. D) will not change. C) may either increase or decrease. Ans: A Econ: 494 LO: 25-3 Micro: 260 Topic: 3 Type: Application of a Concept 92. Assuming that the substitution effect is greater than the output effect. B) the firm will use relatively more labor and relatively less capital. the demand for labor: A) will increase. B) will decrease. Suppose there is a decline in the demand for the product labor is producing. This means that: A) the substitution effect is greater than the output effect. Ans: B Econ: 494 LO: 25-3 Micro: 260 Topic: 3 Type: Complex Analysis 94. D) the output effect is greater than the substitution effect. D) the firm's equilibrium output will necessarily increase. Ans: D Econ: 495 LO: 25-3 Micro: 261 Topic: 3 Type: Complex Analysis 91. Which of the . B) will decrease. Suppose that the price of capital increases relative to the wage rate and. D) will not change. Test Bank 1 Page 165 C) induce the firm to change its level of output. C) may either increase or decrease. which is substitutable for labor. as a result. Furthermore. 17/e. C) may either increase or decrease. B) labor and capital are complementary resources. B) will decrease. increases. Thus the demand for labor: A) will increase. B) cause the firm to alter the combination of inputs it employs. which is complementary to labor. D) do all of the above. C) it is impossible to substitute labor for capital. This is likely the result of: A) capital and labor being complementary inputs. D) will not change. the demand for labor: A) will increase. Ans: A Econ: 496 LO: 25-3 Micro: 262 Status: New Topic: 3 Type: Fact 96. Ans: B Econ: 494 LO: 25-3 Micro: 260 Topic: 3 Type: Application of a Concept 95. which is complementary to labor.

D) perfectly inelastic. D) labor demand is unit-elastic. Given a fixed labor demand curve. B) labor demand is highly elastic. Suppose that a union successfully negotiated a 10 percent wage increase and the quantity of labor demanded increased by 10 percent. B) elastic. Ans: A Econ: 497 LO: 25-4 Micro: 263 Topic: 4 Type: Application of a Concept 101. Ans: A Econ: 497 LO: 25-4 Micro: 263 Topic: 4 Type: Application of a Concept 102. Suppose that a union successfully negotiated a 10 percent wage increase and the quantity of labor demanded decreased by 10 percent. we would expect: A) the demand for resource Y to be more elastic than the demand for resource X. C) unit elastic. B) labor demand is elastic. Test Bank 1 Page 166 Econ: 496 LO: 25-3 Micro: 262 Status: New Topic: 3 Type: Fact 97.S. 17/e. Ans: C Econ: 497 LO: 25-4 Micro: 263 Topic: 4 Type: Application of a Concept 103. D) the demand for . occupations in terms of percentage increases? A) school teachers C) data communication analysts B) physician assistants D) personal and home care aides Ans: A McConnell: Economics. resource demand is: A) inelastic. B) elastic. B) resources X and Y to be close substitutes. Which of the following occupations is not among the ten projected fastest growing U. D) infinitely elastic. McConnell: Economics. 17/e. resource demand is: A) inelastic. When the elasticity coefficient for resource demand is less than one. C) absolute change in resource price divided by the absolute change in resource quantity demanded. D) percentage change in resource price divided by the percentage change in resource quantity demanded. Ans: B Econ: 497 LO: 25-4 Micro: 263 Topic: 4 Type: Fact 99. Other things equal.following occupations is not among the ten projected fastest growing U. D) the coefficient of elasticity of labor demand is less than 1. B) percentage change in resource quantity demanded divided by the percentage change in resource price. C) unit elastic. Elasticity of resource demand is measured by the: A) absolute change in resource quantity demanded divided by the absolute change in resource price. C) labor demand is unit-elastic. C) the coefficient of labor demand elasticity is less than 1. Ans: B Econ: 497 LO: 25-4 Micro: 263 Topic: 4 Type: Fact 100. Resource X has many close substitutes whereas resource Y has no close substitutes. When the elasticity coefficient for resource demand is greater than one. occupations in terms of percentage increases? A) medical assistants B) dental hygienists C) desktop publishers D) software engineers Ans: C Elasticity of resource demand Econ: 497 LO: 25-4 Micro: 263 Topic: 4 Type: Definition 98. We can conclude that: A) the labor demand curve must have independently shifted to the right.S. we can conclude that: A) the labor demand curve is upward sloping. Test Bank 1 Page 167 C) resource X to be more expensive than resource Y.

Ans: D Econ: 497 LO: 25-4 Micro: 263 Status: New Topic: 4 Type: Application of a Concept 107. Ans: D Econ: 497 LO: 25-4 Micro: 263 Topic: 4 Type: Definition 104. C) unit elastic. B) responsiveness of producers to changes in resource prices. D) less the elasticity of resource supply. Ans: C Econ: 497 LO: 25-4 Micro: 263 Topic: 4 Type: Application of a Concept 108. C) larger the labor cost-total cost ratio. the less elastic the demand for labor. Refer to the above data. D) sensitivity of marginal revenue product to changes in product price. C) easier it is to substitute resources that are available. B) the more elastic the demand for the product. C) ratio of marginal revenue product to resource price. B) demand for labor will be elastic only if labor accounts for 50 percent or more of total costs. 17/e. labor demand will be perfectly inelastic. D) larger the labor cost-total cost ratio. For the $16 to $14 range of wage rates. Other things equal. D) inelastic. Ans: B Use the following to answer questions 105-106: W a g e r a te $16 14 12 10 8 Q u a n ity o f L abor dem anded 800 1000 1200 1600 1800 Econ: 497 LO: 25-4 Micro: 263 Status: New Topic: 4 Type: Table 105. Ans: B McConnell: Economics. the smaller will be the elasticity of labor demand. Test Bank 1 Page 168 Econ: 497 LO: 25-4 Micro: 263 Topic: 4 Type: Application of a Concept 109. the demand for labor is: A) perfectly elastic. other things being equal: A) the more elastic the demand for the product. the more elastic the demand for labor. B) elastic.resource X to be more elastic than the demand for resource Y. Ans: D Econ: 497 LO: 25-4 Micro: 263 Topic: 4 Type: Application of a Concept 110. Refer to the above data. B) less the elasticity of demand for the product it is producing. The elasticity of resource demand measures the: A) responsiveness of workers to changes in wage rates. The elasticity of resource demand will be greater the: A) smaller the portion of the product's total costs accounted for by the resource. the greater will be the elasticity of labor demand. C) the elasticity of product demand only affects the elasticity of labor demand when the product market is purely competitive. Over the $10 to $8 range of wage rates. the relationship between the relative importance of a given type of labor in a firm's total costs and the elasticity of demand for that labor is such that the: A) demand for labor will be elastic only if labor accounts for less than 50 percent of total costs. D) if product demand is perfectly elastic. Ans: B Econ: 497 LO: 25-4 Micro: 263 Status: New Topic: 4 Type: Table 106. the greatest decline in employment will occur . labor demand is: A) perfectly elastic. Other things equal. if wage rates increase by 20 percent. C) perfectly inelastic. The relationship between the elasticity of product demand and the elasticity of demand for labor employed in its production is such that. D) inelastic. B) elastic.

C) price of each resource employed is the same. B) more elastic in industry B than in A. D) relatively elastic in both industry A and B. Suppose that the labor cost-total cost ratio in industry A is 82 percent while in industry B it is 21 percent. D) is using the least-cost combination of X and Y. Ans: A Econ: 497 LO: 25-4 Micro: 263 Topic: 4 Type: Application of a Concept 111. C) is producing with the least-costly combination of X and Y. D) marginal revenue product of the last unit of each resource hired is the same. C) unit elastic in both industry A and B. C) unit elastic in both industry A and B. B) more elastic in industry B than in A. B) should hire more of Y and less of X. Ans: A Econ: 497 LO: 25-4 Micro: 263 Topic: 4 Type: Application of a Concept 114. 17/e. Other things equal. labor demand will be: A) more elastic in industry A than in B. Which of the following statements is true? Other things equal. C) large proportion of total costs and product demand is inelastic. Other things equal. C) greater the elasticity of resource supply. Test Bank 1 Page 169 Econ: 499 LO: 25-5 Micro: 265 Topic: 5 Type: Application of a Concept 115. Ans: B Econ: 499 LO: 25-5 Micro: 265 Topic: 5 Type: Application of a Concept 116. Assuming a competitive resource market. B) greater the elasticity of product demand. the demand for labor will be less elastic the: A) the easier it is to substitute capital for labor. D) small proportion of total costs and product demand is inelastic. Ans: C Econ: 497 LO: 25-4 Micro: 263 Topic: 4 Type: Application of a Concept 113.when labor costs are a: A) large proportion of total costs and product demand is elastic.5 in industry A and is 3. Assume that an appliance manufacturer is employing variable resources X and Y in such amounts that the MRPs of the last units of X and Y employed are $100 and $60 respectively. Ans: D Optimal combination of resources McConnell: Economics. C) inelastic. B) small proportion of total costs and product demand is elastic. a firm is hiring several resources in the profit-maximizing amounts when the: A) firm's total outlay on resources is minimized. labor demand is: A) unit elastic.2 in industry B. but could increase its . The firm: A) should hire more of both X and Y. B) elastic. Assume that the coefficient of elasticity of product demand is . D) perfectly elastic. Resource X can be hired at $50 per unit and resource Y at $20 per unit. B) marginal revenue product of each resource is equal to its price. Ans: C Econ: 497 LO: 25-4 Micro: 263 Topic: 4 Type: Application of a Concept 112. labor demand will be: A) more elastic in industry A than in B. If a 10 percent wage increase in a particular labor market results in a 5 percent decline in employment in that market. but could increase its profits by employing more of X and less of Y. D) smaller the ratio of labor costs to total costs. D) relatively inelastic in both industry A and B.

D) the marginal revenue product of the last dollar spent on each of the three resources is the same. The equation MPL/PL = MPC/PC: A) designates the MR = MC level of output. Product X is sold in a purely competitive market. Test Bank 1 Page 170 Econ: 499 LO: 25-5 Micro: 265 Topic: 5 Type: Table 119. Refer to the above data. The output of these independent resources sells in a purely competitive market at $1 per unit. A firm is hiring resources X. The MP of a and b are 6 and 3 respectively and the prices of a and b are $12 and $6 respectively. D) is a necessary. Ans: A Use the following to answer questions 118-121: Answer the next question(s) on the basis of the following marginal product data for resources a and b. Ans: A Econ: 499 LO: 25-5 Micro: 265 Topic: 5 Type: Application of a Concept 117. Y. Assume now that the prices of a and b rise to $15 and $20 respectively.50. what is the least costly combination of resources for the firm to employ in producing 192 units of output? A) 2 of a and 6 of b B) 6 of a and 2 of b C) 4 of a and 3 of b D) 3 of a and 4 of b Ans: D McConnell: Economics. B) assumes imperfect competition in the hiring of labor and capital. its economic profit will be: A) $170 B) $76 C) $145 D) $138 Ans: A Econ: 499 LO: 25-5 Micro: 264 Topic: 5 Type: Table 121. D) $5. When the firm hires the profitmaximizing combination of resources. Ans: C Econ: 498 LO: 25-5 Micro: . C) $2. 17/e. Refer to the above data. but not sufficient. condition for the maximization of profits.profits by employing less of both X and Y. Refer to the above data. Refer to the above data. To maximize profits what combination of a and b should the employer hire? A) 3 of a and 5 of b B) 5 of a and 7 of b C) 7 of a and 7 of b D) 6 of a and 2 of b Ans: A Econ: 498 LO: 25-5 Micro: 264 Topic: 5 Type: Application of a Concept 122. In p u ts of a 1 2 3 4 5 6 7 M Pa 25 20 15 10 5 2 1 In p u ts of b l 2 3 4 5 6 7 M Pb 40 36 32 24 20 16 8 Econ: 499 LO: 25-5 Micro: 265 Topic: 5 Type: Table 118. B) the sum of the MRPs of the three resources is at a minimum. Assume a firm purchases resources a and b under purely competitive conditions and combines these resources to produce X. Ans: D Econ: 498 LO: 25-5 Micro: 264 Topic: 5 Type: Application of a Concept 123. Assuming the prices of resources a and b are $5 and $8 respectively. the price of X will be: A) $1. B) $. what is the profit-maximizing combination of resources? A) 7 of a and 7 of b B) 6 of a and 4 of b C) 5 of a and 7 of b D) 4 of a and 4 of b Ans: C Econ: 500 LO: 25-5 Micro: 265 Topic: 5 Type: Table 120. C) the marginal revenue productivity of all three resources is the same. and Z in the profit-maximizing amounts when: A) MRPx/Px equals MRPy/Py equals MRPz/Pz equals 1. Assuming the prices of resources a and b are $5 and $8 respectively. C) is a sufficient condition for the maximization of profits. If equilibrium exists.

If a firm is employing quantities of resources J and K so that MRPJ/PJ = MRPK/PK = 1. Ans: D Econ: 498 LO: 25-5 Micro: 264 Topic: 5 Type: Complex Analysis 130. B) hire each input so the productivity of each is equal at the margin. D) combining resources a and b so as to minimize costs and maximize profits. the cost-minimization rule may or may not be fulfilled. are: A) 1 and 1. it necessarily follows that the cost-minimization rule is being fulfilled. Assuming pure competition. B) The profit-maximizing and the cost-minimizing rules are such that the fulfilling of one has no bearing on the fulfilling of the other. which of the following are equivalents? A) MRPL/PL = MRPC/PC and Px = 1/MC. McConnell: Economics. B) 2 and 5. this firm is: A) producing its output with the least costly combination of resources. Test Bank 1 Page 171 B) maximizing profits. 17/e. it will minimize the cost of producing any level of output by employing D and F in such amounts that: A) the price of each input .264 Topic: 5 Type: Application of a Concept 124. D) MPJ/PJ = MPK/PK. Ans: A Econ: 498 LO: 25-5 Micro: 264 Topic: 5 Type: Application of a Concept 126. C) 10 and 4. D) Px = MC and MPL/PL = MPC/PC. but is not producing the profitmaximizing output. it necessarily follows that the profit-maximizing rule is being fulfilled. respectively. C) always use large amounts of the most productive inputs and small amounts of the least productive inputs in producing its output. In equilibrium the MPs of l and m. If MPa/Pa = MPb/Pb and MRPa/Pa = MRPb/Pb>1. Ans: A Econ: 498 LO: 25-5 Micro: 264 Topic: 5 Type: Application of a Concept 125. Ans: D Econ: 498 LO: 25-5 Micro: 264 Topic: 5 Type: Application of a Concept 129. C) neither maximizing profits nor minimizing costs. B) MPJ/PJ will be less than MPK/PK. Ans: A Econ: 499 LO: 25-5 Micro: 265 Topic: 5 Type: Application of a Concept 127. B) Px = MC and MRPL/PL = MRPC/PC = 1. C) If the profit-maximizing rule is fulfilled. then: A) MPJ/PJ may either exceed or be less than MPK/PK. D) 5 and 2. D) If the cost-minimization rule is fulfilled. A firm that is motivated by self interest should: A) employ the combination of resources that will produce the profit-maximizing output at the minimum cost. D) always use large amounts of cheap inputs and small amounts of expensive inputs in producing its output. but failing to minimize costs. C) MRPL/PL = MRPC/PC and Px = AVC. The prices of l and m are $10 and $4 respectively. C) MPJ/PJ will exceed MPK/PK. If a firm is hiring variable resources D and F in perfectly competitive input markets. Ans: C Econ: 499 LO: 25-5 Micro: 265 Topic: 5 Type: Application of a Concept 128. Which of the following statements is correct? A) If the profit-maximizing rule is fulfilled. Suppose a firm is hiring resources l and m under purely competitive conditions to produce product Y that sells for $2 in a purely competitive market.

Ans: C McConnell: Economics. B) 4 units of labor and 4 of capital. 17/e. Ans: C Econ: 499 LO: 25-5 Micro: 265 Topic: 5 Type: Application of a Concept 131. McConnell: Economics. C) 5 units of labor and 2 of capital. D) 3 units of labor and 4 of capital. Ans: A Econ: 499 LO: 25-5 Micro: 265 Topic: 5 Type: Table 135. Refer to the above data. The price of resource C is $90 and the price of D is $35. If the prices of labor and capital are $9 and $15 respectively. B) 60 units. Ans: B Econ: 499 LO: 25-5 Micro: 265 Topic: 5 Type: Table 134. Ans: A Use the following to answer questions 133-138: Answer the next question(s) on the basis of the following data: Q u a n t ity o f la b o r 1 2 3 4 5 6 M P of la b o r 15 12 9 6 3 1 M R P of la b o r $45 36 27 18 9 3 Q u a n tity o f c a p ita l 1 2 3 4 5 6 M P of c a p ita l 8 6 5 4 3 2 M R P of c a p ita l $24 18 15 12 9 6 Econ: 499 LO: 25-5 Micro: 265 Topic: 5 Type: Table 133. Test Bank 1 Page 172 D) total expenditure on each input is identical.equals its MP. Ans: D Econ: 499-500 LO: 25-5 Micro: 265-266 Topic: 5 Type: Table 137. D) $192. B) $180. This firm: A) should hire less of C and more of D. If the prices of labor and capital are $9 and $15 respectively. Refer to the above data. Refer to the above data. D) MPD/PF = MPF/PD. Refer to the above data. D) $90. Refer to the above data. This firm is selling its product in: A) an imperfectly competitive market at prices that decline as sales increase. C) 64 units. Suppose a firm is employing all its inputs so that the MRP per dollar spent on each is the same. This suggests that the: A) amount of each resource employed will depend on both its price and its productivity. B) $126. and labor and capital are the only inputs. the firm's total costs will be: A) $106. B) should hire less of both C and D. If the prices of labor and capital are $9 and $15 respectively. the firm will hire: A) 5 units of labor and 3 of capital. Test Bank 1 Page 173 Econ: 499-500 LO: 25-5 Micro: 265-266 Topic: 5 Type: Table 136. C) a purely competitive market at $2 per unit. C) MPD = MPF. Ans: A Econ: 499 LO: 25-5 Micro: 265 Topic: 5 Type: Application of a Concept 132. C) $129. C) should hire more of both C and D. D) 27 units. Assume a pencil manufacturer is employing resources C and D in such quantities that the MRPs of the last units hired are $80 and $50 respectively. B) a purely competitive market at $3 per unit. B) price of each input must be identical. Refer to the above data. the firm's total revenue will be: A) $114. C) firm is using the same quantity of each input. B) MPD/PD = MPF/PF. D) is using the least-cost combination of C and D. D) an imperfectly competitive market at $3 per unit. If the prices of labor and capital are $9 and $15 . 17/e. C) $47. Ans: D Econ: 500 LO: 25-5 Micro: 266 Topic: 5 Type: Table 138. the firm's total output will be: A) 38 units. If the prices of labor and capital are $9 and $15 respectively.

Which of the following must pertain if the firm is to minimize the cost of producing any output? A) MPC = MPL = PX. Ans: C Econ: 500 LO: 25-5 Micro: 266 Topic: 5 Type: Graphical 144. D) firm is fulfilling the least-cost rule in employing resources. If a firm produces output Q1 at a unit cost of c. and labor and capital are the only inputs. Test Bank 1 Page 174 Econ: 498 LO: 25-5 Micro: 264 Topic: 5 Type: Application of a Concept 142. Ans: C Econ: 498 LO: 25-5 Micro: 264 Topic: 5 Type: Application of a Concept 141. The production of Q1 units of output at an average cost of a: A) is not . then the: A) firm is not fulfilling the least-cost rule in employing resources. the firm: A) may be maximizing profits. If a firm produces output Q1 at a unit cost of b. Refer to the above diagram. C) such that the minimization of costs always results in profit maximization. C) marginal product per dollar's worth of each resource employed is not the same. B) $82. D) firm has achieved minimum efficient scale. B) is equal to MPL/PL. C) $67. Ans: D Use the following to answer questions 140-142: Answer the next question(s) on the basis of the following information: Suppose a firm hires both labor (L) and capital (C) under purely competitive conditions. The marginal product of labor is MPL and that of capital is MPC. but it is not minimizing costs. D) cannot be determined from the information given. B) may be minimizing costs. B) firm may or may not be maximizing profits. In competitive labor markets. Refer to the above diagram. Ans: A Econ: 500 LO: 25-5 Micro: 266 Topic: 5 Type: Application of a Concept 139. Refer to the above information. If MPC/PC > MPL/PL. D) such that the maximization of profits always entails the least-cost combination of inputs. Refer to the above information. Ans: C Use the following to answer questions 143-145: Econ: 498 LO: 25-5 Micro: 264 Topic: 5 Type: Graphical 143. Refer to the above information. the firm's economic profits will be: A) $102. The firm sells its product competitively at a price of PX. Econ: 498 LO: 25-5 Micro: 264 Topic: 5 Type: Application of a Concept 140. The profit-maximizing and the least-cost combination of inputs are: A) the result of unrelated decisions. C) MPC = PC and MPL = PL. D) MPC/PX = MPL/PX. The price of labor is PL and that of capital is PC. but it is not maximizing profits. Refer to the above diagram. C) is equal to PL. 17/e. C) is neither minimizing costs nor maximizing profits. then the: A) firm is operating in a purely competitive industry. B) firm is maximizing profits.respectively. C) marginal product per dollar's worth of each resource employed is not the same. B) MPC/PC = MPL/PL. D) $28. the marginal cost of an additional unit of labor: A) is equal to PL MPL. Ans: C McConnell: Economics. B) always identical. Ans: B Econ: 499 LO: 255 Micro: 265 Topic: 5 Type: Graphical 145. D) is minimizing costs and maximizing profits.

" D) resource owners should receive income based upon their needs. B) resource prices need not accurately measure contributions to output. Ans: B Econ: 500 LO: 25-1 Micro: 266 Topic: 6 Type: Application of a Concept 147. The marginal productivity theory of income distribution has been criticized because: A) the resulting distribution of income is likely to be too equal to maintain production incentives. "Income receivers should be paid in accordance with the value of output each produces. D) product demand is typically highly elastic. D) can be realized if the last dollar spent on each input were equal to its marginal product. Ans: A Marginal productivity theory of income distribution McConnell: Economics." the high pay of superstars reflects: A) elastic product demand. but not profit-maximizing. C) the resulting income distribution is ethically correct. The marginal productivity theory of income distribution suggests that : A) government should subsidize the most productive workers through a system of transfer payments. 17/e. B) can be achieved if the firm would hire the optimal mix of resources. The fact that monopoly and monopsony exist in resource markets means that: A) the marginal productivity theory of income distribution is valid. C) high marginal revenue productivity. C) purely competitive conditions characterize most resource markets. Ans: B Consider This Questions Econ: 493 LO: 25-2 Micro: 259 Type: Application of a Concept 150. D) it fails to recognize that resource demand is derived from product demand. C) least-cost. C) entry and exit rarely occur. C) would entail X-inefficiency. B) blocked occupational entry. D) concept of compensating wage differences. D) warped societal values. combination of inputs. (Consider This) According to the Consider This box "She's the One. Ans: B Econ: 493 LO: 25-2 Micro: 259 Type: Application of a Concept 151.possible. C) resource owners should receive income based on the idea of "from each according to his ability. B) income from inherited property is inconsistent with the theory. Test Bank 1 Page 175 Econ: 500 LO: 25-1 Micro: 266 Topic: 6 Type: Definition 146." This statement is consistent with the: A) monopoly theory of income distribution. to each according to his wants. B) each individual should receive income based on his contribution to total output. B) marginal productivity theory of income distribution. Ans: B Econ: 501 LO: 25-1 Micro: 267 Topic: 6 Type: Application of a Concept 148. given present technology and resource prices. D) income shares do not exhaust the total output. Ans: B Last Word . B) small differences in talent get magnified into huge differences in pay. Ans: B Econ: 500 LO: 25-1 Micro: 266 Topic: 6 Type: Application of a Concept 149. (Consider This) In the market for superstars: A) earnings reflect pricing power rather than marginal revenue product.

Producers should hire resources until the total output of each is equal. Ans: True McConnell: Economics. (Last Word) ATMs and human bank tellers: A) are substitute resources. It will be profitable for a firm to hire additional units of any resource up to the point at which its MRP is equal to its MRC. (Last Word) "The Case of ATMs" best illustrates the: A) law of diminishing marginal utility. C) increased the demand for bank tellers. the less elastic will be its resource demand curve. Ans: True Econ: 489 LO: 25-2 Micro: 255 Type: Application of a Concept 163. The demand for a resource depends on its productivity and the market value of the product it is producing. If the substitution effect outweighs the output effect. Ans: False Econ: 493 LO: 25-2 Micro: 259 Type: Application of a Concept 159. B) reduced the demand for bank tellers. Marginal revenue product (MRP) is the . Ans: B Econ: 501 LO: 25-4 Micro: 267 Type: Application of a Concept 153. Ans: False Econ: 490 LO: 25-5 Micro: 256 Type: Application of a Concept 157. Ans: True Econ: 497 LO: 25-4 Micro: 263 Type: Application of a Concept 158. Test Bank 1 Page 177 Econ: 494 LO: 25-3 Micro: 260 Type: Application of a Concept 160. D) principle of unintended side-effects. Ans: False Econ: 492 LO: 25-4 Micro: 258 Type: Application of a Concept 161. Ans: C True/False Questions Econ: 490 LO: 25-2 Micro: 256 Type: Application of a Concept 155. Ans: True Econ: 490 LO: 25-5 Micro: 256 Type: Application of a Concept 156. The MRP of labor curve is the labor demand curve. The demand for labor is a derived demand whereas the demand for capital is not. Test Bank 1 Page 176 Econ: 501 LO: 25-4 Micro: 267 Type: Application of a Concept 152. a decrease in the price of one will reduce the demand for the other. D) increased the hourly wage paid to bank tellers. C) the substitutability of resources. an increase in the price of a substitute resource will increase the demand for labor. Ans: A Econ: 501 LO: 25-4 Micro: 267 Type: Application of a Concept 154.Questions McConnell: Economics. If two resources are complementary. The more elastic the demand for a product the less elastic will be the demand for the resources employed in producing it. Ans: True Econ: 490 LO: 25-2 Micro: 256 Type: Definition 165. Ans: False Econ: 490-491 LO: 25-2 Micro: 256-257 Type: Fact 164. B) are capital goods. Other things equal. The marginal revenue product curve of a purely competitive seller declines solely because of the law of diminishing returns. Ans: True Econ: 494 LO: 25-3 Micro: 260 Type: Application of a Concept 162. 17/e. B) idea of derived demand. 17/e. the less competitive the market in which a firm sells its product. (Last Word) The rapid spread of ATMs has: A) resulted from changes in banking laws. C) have both declined in number because of bank mergers. D) are complementary resources.

The marginal productivity theory of income distribution holds that all resources are paid according to their marginal contribution to society's output. 17/e. In percentage terms. occupations include jobs for which capital is readily substitutable for labor. Test Bank 1 Page 178 Econ: 500 LO: 25-1 Micro: 266 Type: Fact 170. A firm should reduce its employment of a resource whose marginal resource cost exceeds its marginal revenue product. 17/e. Elasticity of resource demand is measured by dividing "percentage change in resource price" by "percentage change in resource quantity. many of the 10 most rapidly declining U. Ans: True Econ: 496 LO: 25-3 Micro: 262 Type: Fact 167.change in total product (total output) associated with hiring an additional unit of labor." Ans: False Econ: 494 LO: 25-3 Micro: 260 Type: Application of a Concept 169. Test Bank 1 Page 179 . An increase in the price of capital will reduce the demand for labor if capital and labor are complementary resources.S. Ans: True McConnell: Economics. Ans: False Econ: 490 LO: 25-5 Micro: 256 Type: Application of a Concept 166. Ans: True Econ: 497 LO: 25-4 Micro: 263 Type: Definition 168. Ans: True McConnell: Economics.

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