Purdue University North Central

Economics 251

Review Questions Chapter 31 - Labor Unions

(1) If 1 worker will be hired by a firm at a wage rate of $5 per hour, but a second worker will be hired only if the wage rate falls to $4 per hour, then at an employment level of 2 workers, the marginal wage is:

(a) $3 per hour.

(b) $4 per hour.

(d) $9 per hour.

(2) The distinction between the market wage and the marginal wage reflects:

(a) the law of diminishing marginal utility.

(b) the law of increasing returns.

(d) the law of supply.

(3) The marginal wage is:

(a) the net cost to a monopsonist of hiring an additional unit of labor.

(b) the net gain to a monopolist seller of labor if an additional unit of labor is hired.

(d) the supply of labor.

(4) From a union’s perspective, the optimal level of employment is determined by the intersection of:

(a) the labor demand curve and the labor supply curve.

(b) the marginal wage curve and the labor supply curve.

(d) the labor demand curve and the marginal factor cost curve.

(5) Suppose a monopsonist must pay $6 per hour to attract 10 workers. If the same monopsonist must raise its wage to $7 per hour to attract the eleventh worker, what is its marginal factor cost for labor?

(a) $67 per hour.

(b) $17 per hour.

(d) $77 per hour.

Consider information in Table 1 in answering Question (6).

Table 1

Marginal

Wage Rate Labor Demand Wages Wage

($/hr) (No. of workers) Paid ($/hr)

6 0 ____ ____

5 1 ____ ____

4 2 ____ ____

3 3 ____ ____

2 4 ____ ____

1 5 ____ ____

(6) What is the marginal wage for the second worker?

(a) $5 per hour.

(b) $3 per hour.

(d) $-3 per hour.

(7) In a bilateral monopoly, wages and employment are determined by:

(a) negotiation.

(b) the intersection of market supply and demand.

(d) the intersection of marginal wage and market demand.

(8) Compared to the competitive market equilibrium, the negotiated wage and employment agreement in the case of bilateral monopoly is likely to result in:

(a) higher wages, but lower output.

(b) lower wages and lower output.

(d) higher or lower wages, but lower output.

Utilize Figure 1 in answering Questions (9) and (10).

Figure 1

10 13 16 24 32 Quantity of Labor

(9) In Figure 1, what is the competitive equilibrium wage and employment level in Figure 1?

(a) $8; 10 workers.

(b) $5; 16 workers.

(d) $11; 32 workers.

(10) In Figure 1, what is the optimal wage and employment level from the perspective of a union?

(a) $11; 32 workers.

(b) $5; 16 workers.

(d) $8; 10 workers.

Utilize Figure 2 in answering Questions (11) and (12).

Figure 2

(11) In Figure 2, for a monopsonist employer, the optimal wage and employment level would be:

(a) $11 per hour and 50 employees.

(b) $7 per hour and 50 employees.

(d) $6 per hour and 40 employees.

(12) In Figure 2, what is the difference between the marginal revenue product of the last worker hired by the monopsonist and the wages the monopsonist pays the last worker?

(a) $3 per hour.

(b) $5 per hour.

(d) $3 per hour.