Economics 251 – Review Questions Chapter 27 – The Demand for Resources
(1)
In the
(a) football players have a higher skill level.
(b) consumers have a greater demand for football games than for soccer games.
(c) football and soccer games are highly substitutable products for most consumers.
(d) the marginal productivity of soccer players exceeds that of football players.
(2) If one worker can pick $30 worth of grapes and two workers together can pick $50 worth of grapes, the:
(a) marginal revenue product of each worker is $25.
(b) marginal revenue product of the first worker is $20.
(c) marginal revenue product of the second worker is $20.
(d) data given do not permit the determination of the marginal revenue product of either worker.
(3) A competitive employer should hire additional labor as long as:
(a) the Marginal Revenue Product exceeds the wage rate.
(b) the wage rate is less than the Marginal Product.
(c) wage rate exceeds the Marginal Revenue Product.
(d) the Marginal Revenue Product exceeds zero.
Consider the information in Table 1 in answering Question (4).
Table 2
Units of Total Marginal Product Marginal Revenue
Labor Product Product Price Product
0 0 ______ $2.00 _____
1 15 ______ $2.00 _____
2 28 ______ $2.00 _____
3 39 ______ $2.00 _____
4 48 ______ $2.00 _____
5 55 ______ $2.00 _____
6 60 ______ $2.00 _____
(4) In Table 1, if the wage rate is $18, how many workers will the firm choose to employ?
(a) 5
(b) 4
(c) 3
(d) 2
(5) A competitive employer is using labor in such an amount that labor's marginal revenue product is $10 and its wage rate is $8. This firm:
(a) should hire more labor because this will increase profits.
(b) should hire more labor, although the impact on profits is not known.
(c) is currently hiring the profit-maximizing amount of labor.
(d) should hire less labor, since labor's return to the firm is less than the cost of labor.
(6) "A firm will employ more of an input whose relative price has fallen and conversely, will use less of an input whose relative price has risen. Thus a fall in the price of capital will increase the relative price of labor and thereby reduce the demand for labor". This describes the:
(a) output effect.
(b) substitution effect.
(c) income effect.
(d) law of diminishing marginal utility.
(7) "A change in an input price will alter both production costs and the profit-maximizing output. Thus a decline in the price of capital will reduce production costs, increase the profit-maximizing output, and thereby increase the demand for labor". This describes the:
(a) output effect.
(b) substitution effect.
(c) income effect.
(d) law of diminishing marginal utility.
(8) The elasticity of resource demand will be greater the:
(a) smaller the portion of the product's total costs accounted for by the resource.
(b) less the elasticity of demand for the product it is producing.
(c) larger the number of good substitute resources which are available.
(d) more rapid the rate of decline in its marginal product.
Consider in the information in Table 2 in answering Questions (9) and (10). The output of these independent resources sells in a perfectly competitive market at $1 per unit.
Table 2
Inputs Inputs
of A TP(A) MP(A) TR(A) MRP(A) of
B TP(B) MP(B) TR(B) MRP(B)
1 ____ 25 ____ ____ 1 ____ 54 ____ ____
2 ____ 20 ____ ____ 2 ____ 36 ____ ____
3 ____ 15 ____ ____ 3 ____ 32 ____ ____
4 ____ 10 ____ ____ 4 ____ 10 ____ ____
5 ____ 5 ____ ____ 5 ____ 9 ____ ____
6 ____ 2.50 ____ ____ 6 ____ 8 ____ ____
7 ____ 1 ____ ____ 7 ____ 7 ____ ____
(9) In Table 2, assume that the prices of resources A and B are $2.50 and $8 respectively. What is the least costly combination of resources for the firm to employ in producing 192 units of output?
(a) 2 of A and 6 of B.
(b) 6 of A and 2 of B.
(c) 4 of A and 3 of B.
(d) 3 of A and 4 of B.
(10) In Table 2, again assume that the prices of resources A and B are $2.50 and $8 respectively. What is the profit-maximizing combination of resources?
(a) 7 of A and 7 of B.
(b) 6 of A and 4 of B.
(c) 5 of A and 7 of B.
(d) 6 of A and 6 of B.
(11) The marginal productivity theory of income distribution suggests that:
(a) each individual should receive income based upon contribution to total output.
(b) income from inherited property is consistent with the theory and should be included as a legitimate reason to justify differences in income among individuals.
(c) resource owners (labor and other resources), should receive income based upon their needs.
(d) resource owners should receive income based on the idea of "from each according to his ability, to each according to his wants."