Purdue
University North Central
Economics
251
Review Questions Chapter 30 -
The Labor Market
(1) An upward-sloping labor supply curve
reflects:
(a) the increasing
marginal utility of income as a person works more hours and earns more income.
(b) the increase in
the quantity of a good or service supplied as prices fall.
(c) the increasing
opportunity cost of work in terms of leisure foregone as the hours of work
increase.
(d) All of the above.
(2) A firm’s demand for labor is referred to
as a derived demand because:
(a) it is derived
from the demand for the product or service that the labor is producing.
(b) it is derived
from the supply of labor.
(c) the quantity of
goods and services labor can purchase is derived from the wages labor receives
from the firm.
(d) None of the above are
true.
(3) If the Marginal Physical Product (MPP)
of an additional unit of labor is 2 units per hour, product price is $6 per
unit, and the wage rate is $15 per hour, then:
(a) the additional
unit of labor should be employed, as Marginal Revenue Product just equals the
cost of labor.
(b) the additional
unit of labor should not be employed because it costs more than it brings in,
in terms of extra revenue.
(c) the firm is not
hiring enough labor, as Marginal Revenue Product greatly exceeds the cost of
labor.
(d) the firm should
continue to hire labor until the Marginal Revenue Product is zero.
(4) The law of diminishing returns states
that, ceteris paribus, the:
(a) Marginal Physical Product (MPP) of labor
declines as additional land, raw materials, and other factors of production are
employed.
(b) MPP of labor declines as the wage rate
falls.
(c) MPP of labor declines as the product
price declines.
(d) MPP of labor eventually declines as more
and more labor is employed.
(5) Suppose that Silva’s Table Company uses
both labor and capital (machines) to produce tables. Given a current mix of labor and machines,
the cost efficiency of labor is 0.4 tables per dollar of input (labor) cost, and
the cost efficiency of machines is 0.6 tables per dollar of input (machine)
cost. Silva should:
(a) hire less labor
and utilize more machinery.
(b) hire more labor
and utilize less machinery.
(c) continue the
same mix, as it ensures optimum cost efficiency.
(d) None of the above.
(6) The opportunity wage is defined as:
(a) the value of
goods or services that an individual can purchase with the income earned by
working one hour.
(b) the income an
individual loses when he or she quits a job.
(c) the highest
wage an individual would earn in his or her best alternative job.
(d) the value of
goods or service that could be purchased with a certain individual’s income.
Utilize the data in the following table to answer Questions
(7) and (8). Assume that the product
price is $2 per unit and the hourly wage for workers is $8.
Number
of Total Marginal Physical Marginal Revenue
Workers Output Product (output Product (dollars
(per hour) (per
hour) per worker) per worker)
1 4 ____ ______
2 10 ____ ______
3 15 ____ ______
4 19 ____ ______
5 22 ____ ______
(7) In the table above, the Marginal Revenue
Product of the second worker hired is:
(a) $6 per hour.
(b) $20 per hour.
(c) $12 per hour.
(d) $8 per hour.
(8) In the table above, how many workers
should be hired?
(a) 2.
(b) 3.
(c) 4.
(d) 5.
Consider the data in the following table to answer Question
(9). Assume that the cost of labor is $2 per unit, and the cost of capital is
$4 per unit.
Output Labor Output Capital
(units) (units) (units) (units)
12 1 18 1
22 2 30 2
30 3 40 3
(9) In the table above, what is the cost
efficiency of the second unit of labor?
(a) 22 units per $1 of cost.
(b) 11 units per $1 of cost.
(c) 5 units per $1 of cost.
(d) 4 units per $1 of cost.
Consider Figure 1 in answering Question (10).
Figure
1
ec251_files/image001.gif)
(10) In Figure 1, a minimum wage of $10 will
result in:
(a) a shortage of
80 workers.
(b) a surplus of 16
workers.
(c) a shortage of
90 workers.
(d) a surplus of 10
workers.