Question 1

• Although horses were once a very important factor of production, the development of automobiles and other machinery reduced the demand for their use. This is an example of: – A. Lower prices of substitute factors shifting demand for horses to the left.

– B. Higher marginal costs for horses, shifting demand for horses to the right.

– C. Technological progress shifting the demand for horses to the right.

– D. Higher marginal costs for horses, having no impact on the demand for horses.

– E. Technological progress shifting the demand for horses to the left.

Question 1

• Although horses were once a very important factor of production, the development of automobiles and other machinery reduced the demand for their use. This is an example of: – A. Lower prices of substitute factors shifting demand for horses to the left.

– B. Higher marginal costs for horses, shifting demand for horses to the right.

– C. Technological progress shifting the demand for horses to the right.

– D. Higher marginal costs for horses, having no impact on the demand for horses.

– E. Technological progress shifting the demand for horses to the left.

Quantity of Labor (workers) Debbie’s Bakery Total Product of Labor (cakes per worker)

2 3 0 1 0 3 10 16 4 5 6 21 25 28 2. Debbie owns a bakery and can hire workers to produce cakes selling in a competitive output market at $10 each. The table shows the relationship between the number of workers and the number of cakes produced. What is the value of the marginal product for the fourth worker?

a. Five cakes b. $50 c. $210 d. 21 cakes e. $250

Quantity of Labor (workers) Debbie’s Bakery Total Product of Labor (cakes per worker)

2 3 0 1 0 3 10 16 4 5 6 21 25 28 2. Debbie owns a bakery and can hire workers to produce cakes selling in a competitive output market at $10 each. The table shows the relationship between the number of workers and the number of cakes produced. What is the value of the marginal product for the fourth worker?

a. Five cakes b. $50 c. $210 d. 21 cakes e. $250

Quantity of Labor (workers) Debbie’s Bakery Total Product of Labor (cakes per worker)

2 3 0 1 0 3 10 16 4 5 6 21 25 28 3. Debbie must pay each worker a competitive market wage of $45 per day. How many workers will she hire to maximize profit?

a. Two b. Three c. Four d. Five e. Six

Quantity of Labor (workers) Debbie’s Bakery Total Product of Labor (cakes per worker)

2 3 0 1 0 3 10 16 4 5 6 21 25 28 3. Debbie must pay each worker a competitive market wage of $45 per day. How many workers will she hire to maximize profit?

a. Two b. Three c. Four d. Five e. Six

4. Sarah owns a small flower shop and the industry is perfectly competitive. She is considering whether or not to hire an additional worker. The wage rate for the worker is $500 per week; the marginal product of the additional worker would be 100 units per week; and the price of the units produced is $10 per unit. What should Sarah do?

a. Hire the additional worker because the value of the marginal product exceeds the wage.

b. Not hire the additional worker because the value of the marginal product exceeds the wage.

c.

Raise the price of the flower arrangements that she sells.

d. Hire the additional worker because the value of the marginal product is below the wage.

e. Not hire the additional worker because the value of the marginal product is below the wage.

4. Sarah owns a small flower shop and the industry is perfectly competitive. She is considering whether or not to hire an additional worker. The wage rate for the worker is $500 per week; the marginal product of the additional worker would be 100 units per week; and the price of the units produced is $10 per unit. What should Sarah do?

a. Hire the additional worker because the value of the marginal product exceeds the wage.

b. Not hire the additional worker because the value of the marginal product exceeds the wage.

c.

Raise the price of the flower arrangements that she sells.

d. Hire the additional worker because the value of the marginal product is below the wage.

e. Not hire the additional worker because the value of the marginal product is below the wage.

5. In the figure, if the market wage rate increases: a. The VMPL curve would shift to the right.

b. The profit-maximizing quantity of labor will increase.

c. The VMPL curve would shift to the left.

d. The profit-maximizing quantity of labor will decrease.

e. There will be no change to the profit-maximizing quantity of labor.

5. In the figure, if the market wage rate increases: a. The VMPL curve would shift to the right.

b. The profit-maximizing quantity of labor will increase.

c. The VMPL curve would shift to the left.

d. The profit-maximizing quantity of labor will decrease.

e. There will be no change to the profit-maximizing quantity of labor.

6. Assume that the market wage rate for bricklayers is $100. For a profit-maximizing firm at the equilibrium level of output, the VMPL bricklayers is: a. $200.

b. Equal to the market wage rate.

c.

Irrelevant, since the firm is a price-taker.

d. Six units of labor.

e. Equal to zero.

6. Assume that the market wage rate for bricklayers is $100. For a profit-maximizing firm at the equilibrium level of output, the VMPL bricklayers is: a. $200.

b. Equal to the market wage rate.

c.

Irrelevant, since the firm is a price-taker.

d. Six units of labor.

e. Equal to zero.

7. If there is a decrease in another factor of production that bricklayers use, then the value of the 8 th worker will be _____ the current value of _____.

a. Less than; $80 b. Greater than; $100 c. Less than; $60 d. Greater than; $80 e. Equal to; $80

7. If there is a decrease in another factor of production that bricklayers use, then the value of the 8 th worker will be _____ the current value of _____.

a. Less than; $80 b. Greater than; $100 c. Less than; $60 d. Greater than; $80 e. Equal to; $80

Droids and Moisture Output

Number of Droids Output of Moisture (barrels per month) 2 3 0 1 0 25 45 60 4 5 70 75 8. Luke Skywalker operates a moisture farm on the planet Tatooine. The moisture farm utilizes droids. Luke’s production function is given in the table. A barrel of moisture sells for 10 Republic Credits. A droid costs 65 Republic Credits per month to rent. How many droids should Luke rent?

a. One b. Two c. Three d. Four e. Five

Droids and Moisture Output

Number of Droids Output of Moisture (barrels per month) 2 3 0 1 0 25 45 60 4 5 70 75 8. Luke Skywalker operates a moisture farm on the planet Tatooine. The moisture farm utilizes droids. Luke’s production function is given in the table. A barrel of moisture sells for 10 Republic Credits. A droid costs 65 Republic Credits per month to rent. How many droids should Luke rent?

a. One b. Two c. Three d. Four e. Five

9. Suppose the competitive labor market for plumbers is currently in equilibrium. Which of the following might decrease the wage for plumbers?

A. An economic boom increases the demand for new homes.

B. The plumbers union creates a rigorous certification test that is difficult for aspiring plumbers to pass.

C. A shortage of plumbers currently exists in the market.

D. A minimum wage is imposed on the market for plumbers.

E. Unemployed manufacturing workers attend technical schools to learn the plumbing trade.

9. Suppose the competitive labor market for plumbers is currently in equilibrium. Which of the following might decrease the wage for plumbers?

A. An economic boom increases the demand for new homes.

B. The plumbers union creates a rigorous certification test that is difficult for aspiring plumbers to pass.

C. A shortage of plumbers currently exists in the market.

D. A minimum wage is imposed on the market for plumbers.

E. Unemployed manufacturing workers attend technical schools to learn the plumbing trade.

10.John is an entrepreneur who runs his own auto body repair shop. Suppose that John’s business is booming and his salary is rising. John’s labor supply curve will be: A. Upward-sloping if the substitution effect is smaller than the income effect.

B. Downward-sloping if the substitution effect is smaller than the income effect.

C. Horizontal if the substitution effect is equal to the income effect.

D. Vertical if the substitution effect is less than the income effect.

E. Horizontal if the substitution effect is greater than the income effect.

10.John is an entrepreneur who runs his own auto body repair shop. Suppose that John’s business is booming and his salary is rising. John’s labor supply curve will be: A. Upward-sloping if the substitution effect is smaller than the income effect.

B. Downward-sloping if the substitution effect is smaller than the income effect.

C. Horizontal if the substitution effect is equal to the income effect.

D. Vertical if the substitution effect is less than the income effect.

E. Horizontal if the substitution effect is greater than the income effect.

11.An increase in wealth will cause the labor supply curve to:

A. Become less elastic but still upward-sloping.

B. Be downward-sloping if the substitution effect dominates the income effect.

C. Be upward-sloping if leisure is an inferior good.

D. Be backward-bending if the income effect outweigh the substitution effect of a change in wealth, and leisure is a normal good.

E. Shift leftward if leisure is a normal good.

11.An increase in wealth will cause the labor supply curve to:

A. Become less elastic but still upward-sloping.

B. Be downward-sloping if the substitution effect dominates the income effect.

C. Be upward-sloping if leisure is an inferior good.

D. Be backward-bending if the income effect outweigh the substitution effect of a change in wealth, and leisure is a normal good.

E. Shift leftward if leisure is a normal good.

12.The price of an extra hour of leisure is: A. $1.

B. The hourly wage rate.

C. The price of a movie ticket.

D. The total utility of labor.

E. The marginal product.

12.The price of an extra hour of leisure is: A. $1.

B. The hourly wage rate.

C. The price of a movie ticket.

D. The total utility of labor.

E. The marginal product.

13.Which of the following will not shift the labor supply curve?

a. A change in preferences and social norms.

b. Changes in wealth.

c. Changes in opportunities.

d. A change in the wage rate.

e. A change in the population.

13.Which of the following will not shift the labor supply curve?

a. A change in preferences and social norms.

b. Changes in wealth.

c. Changes in opportunities.

d. A change in the wage rate.

e. A change in the population.

14. In the table, if the price of a bushel of wheat is $10, then the value of the marginal product of the third worker is: A. $15.

B. $150.

C. $170.

D. $510.

E. $10.

14. In the table, if the price of a bushel of wheat is $10, then the value of the marginal product of the third worker is: A. $15.

B. $150.

C. $170.

D. $510.

E. $10.

15. In the table, if the price of a bushel of wheat is $5 and the price of labor (wage) is $40, then the profit-maximizing quantity of labor is: A.

One.

B.

E.

Three.

C.

Six.

D. Eight.

Seven.

15. In the table, if the price of a bushel of wheat is $5 and the price of labor (wage) is $40, then the profit-maximizing quantity of labor is: A.

One.

B.

E.

Three.

C.

Six.

D. Eight.

Seven.

16.Which of the following statements is true?

A. If W < VMPL, the firm should hire more labor.

B. If W > VMPL, the firm should hire more labor.

C. If W = VMPL, the firm should hire more labor.

D. If W > 0, the firm should shut down.

E. If W < P, the firm should hire more labor.

16.Which of the following statements is true?

A. If W < VMPL, the firm should hire more labor.

B. If W > VMPL, the firm should hire more labor.

C. If W = VMPL, the firm should hire more labor.

D. If W > 0, the firm should shut down.

E. If W < P, the firm should hire more labor.