Chapter 15: Pricing in Input Markets

A firm’s demand for labor is known as a “derived demand” because
1. the firm gains utility from hiring more labor.
2. the amount of labor hired depends upon how much output the firm can sell.
3. the wage rate paid to workers is derived from the market for labor.
4. it is derived from the demand for capital.
If the price of an input falls, a firm would increase the use of that input for two reasons:
1. The input is now more productive, and the firm can substitute this input for other relatively more expensive inputs.
2. The input is now more productive, and overall production costs are now lower, meaning a firm may choose to increase production.
3. Overall production costs are now lower and the firm can substitute this input for other relatively more expensive inputs.
4. Overall production costs are now lower and the firm will have more of other inputs to use with the one in question.
In an input market, economic rent is defined as
1. the total remuneration paid to a factor of production.
2. the minimum amount required to retain a factor of production in its present use.
3. the total cost for a firm of renting land, equipment, and buildings.
4. the extent to which payments to a factor of production exceed the minimum amount required to retain it in its present use.
If a factor of production comes to have more and more alternative uses, its supply curve to any one use
1. remains unchanged.
2. becomes more inelastic.
3. becomes more elastic.
4. may move in any direction.
A firm will hire additional units of any input up to the point where
1. the marginal productivity of the input is maximized.
2. the marginal cost of employing the input is minimized.
3. the expense of employing the last unit is equal to the revenue brought in by the last unit.
4. the revenue brought in by the input is maximized.
An input’s marginal revenue product is given by
1. the input’s marginal expense times marginal revenue.
2. the input’s marginal expense times the input’s marginal physical productivity.
3. marginal revenue times the number of units employed.
4. the input’s marginal physical productivity times marginal revenue of the firm’s output.
If a firm is a price taker in the input market but not in the output market, its marginal value product of labor
1. exceeds the marginal revenue product of labor.
2. equals its marginal revenue product of labor.
3. is less than the marginal revenue product of labor.
4. equals the marginal physical product of labor.
If a firm is a price taker in both the input and output markets, its marginal revenue product of labor is given by
1. the price of its output times labor’s marginal physical productivity.
2. the marginal value product of labor.
3. the marginal revenue product of capital times the ratio of the wage rate to the rental rate on capital.
4. all of the above.
A profit-maximizing firm will never hire that quantity of a factor of production for which that factor has an increasing marginal productivity because
1. it would not be maximizing output.
2. it would not be maximizing the productivity of labor.
3. it would not be minimizing costs.
4. it would not be maximizing profits.
The substitution effect of a change in wage rate on a firm’s demand for labor input will be more significant
1. the greater the change in output.
2. the more sharply curved are the firm’s isoquants.
3. the flatter are the firm’s isoquants.
4. the larger the quantity of labor employed.

Chapter 15: Pricing in Input Markets

Multiple Choice Questions