CH18

1. When a production function exhibits a diminishing, but positive,

marginal product of labor,
a. output increases, but at an increasing rate, as more workers are
employed.
b. output increases, but at a decreasing rate, as more workers are
employed.
c. output declines as more workers are employed.
d. the effects on marginal product are ambiguous.
ANS: B

2. The value of the marginal product of labor is equal to the

change in
a. marginal cost caused by the addition of the last worker.
b. total cost caused by the addition of the last worker.
c. total revenue caused by the addition of the last worker.
d. total profit caused by the addition of the last worker.
ANS: C

3. If the wage exceeds the value of the marginal product of labor,

then hiring another worker
a. decreases the firm's total revenue.
b. increases the firm's profit.
c. decreases the firm's total cost.
d. decreases the firms profit.
ANS: D

4. When labor is the only input a firm uses, the marginal cost of a
unit of output can be defined as
a. the marginal revenue multiplied by the wage.
b. the marginal product of labor multiplied by the wage.
c. the wage divided by the marginal product of labor.
d. the marginal product of labor divided by the wage.
ANS: C

5. For maximum profit, a firm hires labor up to the point at which

the wage equals
(i) the value of the marginal product of labor.
(ii) the marginal cost of an additional unit of output.
(iii) output price multiplied by the marginal product of labor.
a. (i) and (ii)
b. (i) and (iii)
c. (ii) and (iii)
d. All of the above are correct.
ANS: B
Table 18-2
Quantity of Number of Calculators
Labor Per Week
0 0
1 200
2 360
3 480
4 560
5 600

6. Refer to Table 18-2. The following table shows the number of

calculators that can be assembled per week by various numbers of
workers. If the price per calculator in a perfectly competitive product
market is $8, how many workers would the firm employ if the
weekly wage rate is $800?
a. 1
b. 2
c. 3
d. 4
ANS: C

Table 18-3
Number of Output of Output of Output of Output of
Workers (L) Firm A Firm B Firm C Firm D
1 100 100 100 100
2 200 300 190 80
3 300 600 270 60
4 400 1,000 340 40

7. Refer to Table 18-3. Which firms production function exhibits

positive but diminish-ing marginal product?
a. Firm A
b. Firm B
c. Firm C
d. Firm D
ANS: C

Table 18-4
Labor Output Marginal Value of Wage Marginal
Product Marginal Profit
of Labor Product of
Labor
0 0 --- --- --- ---
1 400 400 $1200 $400 $800
2 700 300 $ 900 $400 $500
3 950 250 $ 750 $400 $350
4 1050 100 $ 300 $400 -$100

8. Refer to Table 18-4. The price of output is

a. $1.
b. $2.
c. $3.
d. $400.
ANS: C

9. Refer to Table 18-4. How many workers should the firm hire?
a. 1
b. 2
c. 3
d. 4
ANS: C

Table 18-7
Harold owns a cranberry bog in which he grows cranberries. Harolds farm is
a competitive, profit-maximizing firm. Harolds production function is
detailed in the table below.
Labor Output
(# of (in bushels)
workers)
0 0
1 90
2 170
3 220
4 250
5 270

10. Refer to Table 18-7. What is the marginal product of the third
worker?
a. 220 bushels
b. 73.33 bushels
c. 50 bushels
d. 30 bushels
ANS: C

11. Refer to Table 18-7. If Harold pays his workers $80 per day and
sells his cranberries for $5 per bushel, what is the value of the
marginal product of the second worker?
a. $80
b. $400
c. $6,400
d. $32,000
ANS: B

12. Refer to Table 18-7. If Harold pays his workers $250 per day
and sells his cranberries for $5 per bushel, what is the maximum
number of workers that he will hire?
a. 1
b. 2
c. 3
d. 4
ANS: C
13. Which of the following would decrease the demand for labor?
(i) a decrease in the output price
(ii) an increase in the output price
(iii) a labor-saving technological advance
(iv) a labor-augmenting technological advance
a. (i) only
b. (i) and (iii) only
c. (ii) only
d. (ii) and (iv) only
ANS: B

14. If the price of airline tickets falls, what will happen to the
demand curve for flight attendants?
a. It will shift to the right.
b. It will shift to the left.
c. The direction of the shift is ambiguous.
d. It will remain unchanged.
ANS: B

15. Which of the following events could increase the demand for
labor?
a. A decrease in output price
b. A decrease in the amount of capital available for workers to use
c. An increase in the marginal productivity of workers
d. A decrease in the wage paid to workers
ANS: C

16. Which of the following events would shift a labor supply curve?
(i) immigration of high-skilled workers
(ii) immigration of low-skilled workers
(iii) changes in the number of women willing to work full time
a. (i) and (iii) only
b. (ii) and (iii) only
c. (iii) only
d. (i), (ii), and (iii)
ANS: D

17. Consider the labor market for computer programmers. During

the late 1990s, the value of the marginal product of all computer
programmers increased dramatically. Holding all else equal, what
effect did this process have on the labor market for computer
programmers? The equilibrium wage
a. increased, and the equilibrium quantity of labor increased.
b. increased, and the equilibrium quantity of labor decreased.
c. decreased, and the equilibrium quantity of labor increased.
d. decreased, and the equilibrium quantity of labor decreased.
ANS: A

18. In economics, the term capital refers to

a. money.
b. stocks and bonds.
c. equipment and structures used in production.
d. All of the above are correct.
ANS: C

19. The rental price of capital is determined by the

a. forces of supply and demand in capital markets.
b. amount of equity that is generated in equity markets.
c. amount of bond financing used by profit-maximizing firms.
d. amount of dividends paid out to stockholders by profit-
maximizing firms.
ANS: A