True/False
Indicate whether the
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
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. | c. | money, stocks, and
bonds. | b. | water, earth, and knowledge. | 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?
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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 hire a. | one worker. | b. | two workers. | c. | three
workers. | d. | four workers. | e. | five workers. |
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21.
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The value of the marginal product of labour is the
a. | price of the output times the wage of labour. | b. | price of the output
times the marginal product of labour. | c. | value of the output of all units of labour
employed. | d. | wage of labour times the quantity of labour. | e. | 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. | c. | production
function. | b. | demand curve for capital. | 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
the
a. | wage, the rental price of capital, and the rental price of land are all
equal. | b. | marginal product of labour equals zero and the production function is
maximized. | c. | value of the marginal product of labour equals the wage. | d. | 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. | right and increases the wage. | c. | left and decreases the
wage. | b. | right and decreases 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. | c. | retained earnings. | b. | dividends. | d. | increases in stocks of
goods. |
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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. | c. | Wages fall and rental rates
rise. | b. | Wages rise and rental rates rise. | d. | Wages fall and rental rates
fall. |
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