True/False
Indicate whether the
sentence or statement is true or false.
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1.
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The factors of production are labour, land, and
money.
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2.
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The demand for a factor is considered to be a
derived demand because it is derived from the firm's decision to supply output in another
market.
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3.
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For a competitive profit-maximizing firm, the
demand curve for a factor is the value of the marginal product curve for that factor.
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4.
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A factor exhibits diminishing marginal productivity
if employing additional units of the factor reduces output.
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5.
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If there is an increase in the equilibrium wage,
there must have been an increase in the value of the marginal product of labour.
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6.
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An increase in the demand for textbooks will
increase the value of the marginal product of textbook writers.
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7.
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A decrease in the supply of labour reduces the
value of the marginal product of labour, decreases the wage, and decreases employment.
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8.
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The only way for the value of the marginal product
of a factor to rise is for the price of the output produced by the factor to rise.
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9.
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An increase in the demand for pencils will likely
improve the fortunes of both the pencil factory and the workers in the pencil factory.
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10.
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The demand for labour is downward sloping because
the production function exhibits diminishing marginal productivity of labour.
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11.
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In equilibrium, when a competitive firm hires
labour up to the point at which the value of the marginal product of labour equals the wage, it also
produces up to the point at which the price equals marginal cost.
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12.
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An increase in the supply of capital will increase
the marginal product of capital and the rental rate of capital.
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13.
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If capital is owned by firms as opposed to being
owned directly by households, then capital income will be in the form of shares, bonds, and retained
interest.
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14.
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The value of the marginal product of land is the
marginal product of land multiplied by the price of the output produced on the land.
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15.
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An increase in the supply of capital decreases the
value of the marginal product of capital, reduces the rental rate of capital, and decreases the value
of the marginal product of labour, which reduces the wage of labour.
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Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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16.
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The most important factors of production
are
a. | labour, land, and capital. | b. | water, earth, and knowledge. | c. | money, stocks, and bonds. | d. | management, finance, and marketing. |
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17.
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If a factor exhibits diminishing marginal product,
hiring additional units of the factor will
a. | cause a reduction in output. | b. | have no effect on output. | c. | increase the marginal product of the factor. | d. | generate ever smaller amounts of
output. |
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18.
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| Figure 18-1 | | | Labour (number of
workers) | Output per hour | Marginal Product of Labour (MPL) | Value
of MPL | 0 | 0 | | | 1 | 5 | | | 2 | 9 | | | 3 | 12 | | | 4 | 14 | | | 5 | 15 | | | | | | |
Refer to Figure 18-1. What is the marginal product of labour as the firm moves
from using three workers to using four workers?a. | 14 | b. | 0 | c. | none of these
answers | d. | 2 | e. | 12 |
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19.
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| Figure 18-1 | | | Labour (number of
workers) | Output per hour | Marginal Product of Labour (MPL) | Value
of MPL | 0 | 0 | | | 1 | 5 | | | 2 | 9 | | | 3 | 12 | | | 4 | 14 | | | 5 | 15 | | | | | | |
Refer to Figure 18-1. If the price of output is €4 per unit, what is the
value of the marginal product of labour as the firm moves from using four workers to using five
workers?
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20.
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| Figure 18-1 | | | Labour (number of
workers) | Output per hour | Marginal Product of Labour (MPL) | Value
of MPL | 0 | 0 | | | 1 | 5 | | | 2 | 9 | | | 3 | 12 | | | 4 | 14 | | | 5 | 15 | | | | | | |
Refer to Figure 18-1. If this profit-maximizing firm sells its output in a
competitive market for €3 per unit and hires labour in a competitive market for €8/hour,
then this firm should hirea. | four workers. | b. | three
workers. | c. | two workers. | d. | five workers. | e. | one worker. |
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21.
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The value of the marginal product of labour
is
a. | the price of the output times the wage of
labour. | b. | the price of the output times the marginal product of
labour. | c. | none of these answers. | d. | the wage of labour times the quantity of labour. | e. | the wage of labour times the marginal product of
labour. |
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22.
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For a competitive, profit-maximizing firm, the
value-of-the-marginal-product curve for capital is the firm's
a. | supply curve of capital. | b. | demand curve for capital. | c. | production function. | d. | marginal cost
curve. |
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23.
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An increase in the supply of labour
a. | increases the value of the marginal product of labour
and decreases the wage. | b. | decreases the
value of the marginal product of labour and decreases the wage. | c. | decreases the value of the marginal product of labour and increases the
wage. | d. | increases the value of the marginal product of labour
and increases the wage. |
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24.
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A decrease in the demand for fish
a. | decreases the value of the marginal product of
fishermen, reduces their wage, and reduces employment in the fishing
industry. | b. | increases the value of the marginal product of
fishermen, increases their wage, and increases employment in the fishing
industry. | c. | decreases the value of the marginal product of
fishermen, reduces their wage, and increases employment in the fishing
industry. | d. | increases the value of the marginal product of
fishermen, increases their wage, and decreases employment in the fishing
industry. |
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25.
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What will a decrease in the supply of fishermen do
to the market for capital employed in the fishing industry?
a. | increase the demand for fishing boats and decrease
rental rates on fishing boats | b. | decrease the
demand for fishing boats and increase rental rates on fishing boats | c. | decrease the demand for fishing boats and decrease rental rates on fishing
boats | d. | increase the demand for fishing boats and increase
rental rates on fishing boats |
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26.
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An increase in the demand for apples will cause all
but which of the following?
a. | a decrease in the number of apple pickers
employed | b. | an increase in the value of the marginal product of
apple pickers | c. | an increase in the
price of apples | d. | an increase in the
wage of apple pickers |
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27.
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A decrease in the supply of farm tractors will
cause all but which of the following?
a. | an increase in the rental rate for
tractors | b. | a decrease in the rental rate of
farmland | c. | an increase in the value of the marginal product of
tractors | d. | an increase in the wage of farm
workers |
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28.
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If both input and output markets are competitive
and firms are profit maximizing, then in equilibrium each factor of production earns
a. | an amount equal to the price of output times total
output. | b. | the amount allocated by the political
process. | c. | an equal share of output. | d. | the value of its marginal product. |
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29.
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An individual firm's demand for a factor of
production
a. | slopes downward because an increase in the production of
output reduces the price at which the output can be sold in a competitive market, thereby reducing
the value of the marginal product as more of the factor is used. | b. | slopes downward due to the factor's diminishing marginal
product. | c. | slopes upward due to the factor's increasing
marginal product. | d. | is perfectly
elastic (horizontal) if the factor market is perfectly
competitive. |
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30.
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An increase in the demand for a firm's
output
a. | decreases the prosperity of the firm but increases the
prosperity of the factors hired by the firm. | b. | decreases the
prosperity of both the firm and the factors hired by the firm. | c. | increases the prosperity of both the firm and the factors hired by the
firm. | d. | increases the prosperity of the firm but decreases the
prosperity of the factors hired by the firm. |
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31.
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A competitive, profit-maximizing firm should hire
workers up to the point where
a. | the wage, the rental price of capital, and the rental
price of land are all equal. | b. | the marginal
product of labour equals zero and the production function is maximized. | c. | the value of the marginal product of labour equals the
wage. | d. | the marginal product of labour equals the
wage. |
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32.
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Which of the following is not true with regard to
workers who have a high value of marginal product? These workers
a. | have skills that are in relatively scarce
supply. | b. | produce output for which there is great
demand. | c. | usually have little capital with which to
work. | d. | are usually highly
paid. |
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33.
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An increase in the price of automobiles shifts the
demand for autoworkers to the
a. | left and decreases the wage. | b. | right and decreases the wage. | c. | right and increases the wage. | d. | left and increases the wage. |
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34.
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When capital is owned by the firm as opposed to
being directly owned by households, capital income may take any of the following forms
except
a. | interest. | b. | dividends. | c. | increases in
stocks of goods. | d. | retained
earnings. |
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35.
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Suppose that a war is fought with biological
weapons. The weapons destroy people but not capital. What is likely to happen to equilibrium wages
and rental rates after the war when compared to their values before the war?
a. | Wages rise and rental rates
fall. | b. | Wages rise and rental rates
rise. | c. | Wages fall and rental rates
rise. | d. | Wages fall and rental rates
fall. |
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