Additional Practice Exam - Chapter 27, Microeconomics of Resource Markets

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Write your name on the exam and the answer sheet. Answer each of the questions on the answer sheet provided. You may write on the exam.




1. If MRP < W , a firm should hire more workers.
A.True
B.False


2. In which case below will the elasticity of demand for laborers who produce yo-yos be most inelastic? The price elasticity of demand for yo-yos is:
A.5, and labor's share of total costs is 20 percent.
B.5, and labor's share of total costs is 75 percent.
C..1, and labor's share of total costs is 20 percent.
D..1, and labor's share of total costs is 75 percent.


3. In a purely competitive industry, a decrease in a firm's marginal revenue product curve for an economic resource could result from a(n):
A.decrease in demand for the firm's final product.
B.decrease in the price of the economic resource.
C.decrease in the supply of the economic resource.
D.increase in the marginal productivity of the resource.


4. If capital and labor are used in rigidly fixed proportions and the price of capital falls, it can be concluded that:
A.the substitution and output effects will work in opposite directions so no judgment can be made as to the effect on labor demand.
B.labor demand will tend to increase.
C.the elasticity of demand for both labor and capital will increase.
D.labor demand will necessarily decline.


5. An example of derived demand is the demand for:
A.new automobiles.
B.used automobiles.
C.labor used to produce autos.
D.foreign instead of domestic autos.


6. Which is an example of a change in the price of another resource that decreases labor demand?
A.A decline in the demand for computers in Europe reduces the demand for workers in the domestic computer industry.
B.The rise of hair salons for both men and women reduces the demand for barbers.
C.A decrease in the educational skills of manufacturing workers decreases the demand for such workers.
D.An increase in the price of chemical equipment increases the cost of producing fertilizer, thus decreasing the demand for workers who make fertilizer.


7. If two inputs are complementary and employed in fixed proportions, an increase in the price of one input will:
A.decrease the demand for the other input.
B.increase the demand for the other input.
C.increase the quantity demanded for the other input.
D.have no effect on the demand for the other input.


8. Which is an example of a change in productivity that decreases labor demand?
A.A financial crisis in Asian nations reduces the demand for exports to Asia, thus decreasing the demand for domestic workers in the computer industry.
B.Tattoos fade in popularity, thus decreasing the demand for tattoo artists.
C.More government regulation decreases output per worker in the fast food industry, thus decreasing demand for fast food workers.
D.An increase in the price of construction equipment reduces the demand for construction equipment operators


9. (Last Word) What happened in the banking industry with the introduction of ATMs which had a higher MP/P than for the substitute resource of human tellers?
A.Human tellers replaced many ATMs because people did not want to use ATMs.
B.ATMs replaced many human tellers because it reduced banks' costs.
C.More of both ATMs and human tellers were used because banks were more productive.
D.Less of both ATMs and human tellers were used because banks did not know how to use the new technology


10. The demand curve for labor will most likely increase when the price of a:
A.complementary input increases, provided the substitution effect is greater than the output effect.
B.substitute input decreases, provided the output effect is greater than the substitution effect.
C.substitute input increases, provided the output effect is greater than the substitution effect.
D.substitute input decreases, provided the substitution effect is greater than the output effect.


11.

Units ofTotalProduct
resourceproductprice
00$3.80
1103.70
2193.60
3273.50
4343.40
5403.30
R-1 REF 27-30 (REF27030)

Refer to the above table. The marginal revenue product of the fourth input is approximately:
A.$27.
B.$21.
C.$16.
D.$13.



12. If a factor of production has many close substitutes, we would expect that its price elasticity of demand would be:
A.unity.
B.less than one.
C.greater than one.
D.unimportant because ease of substitution has no effect on the price elasticity of that factor.


13.
The following is a total-product schedule for a resource. Assume that the quantities of other resources the firm employs remain constant.

Units ofTotal
resourceproduct
124
242
354
464
572
R-2 REF 27-16 (REF27016)

Refer to the above table. If the firm can sell 24 units of output at a price of $1.00 and 42 units of output at a price of $0.80, the marginal revenue product of the second unit of the resource is:
A.$5.40.
B.$7.80.
C.$9.60.
D.$12.20.



14. The marginal revenue product of an input in a competitive market decreases as a firm increases the quantity of an input used because of the:
A.law of diminishing returns.
B.law of diminishing marginal utility.
C.homogeneity of the product.
D.free mobility of resources.


15. An example of derived demand is the demand for:
A.housing by consumers.
B.machines by businesses.
C.paper products by households.
D.agricultural products by foreign consumers.


16. A firm is both hiring labor and selling output in purely competitive markets and is maximizing profits. It is, currently, operating in the elastic range of its MRP curve. If the wage rate increases, its total spending on wages at the new equilibrium will:
A.be larger.
B.be smaller.
C.be unchanged.
D.change in an undetermined direction.


17. A profit-maximizing firm should hire an input as long as the:
A.firm can increase its total revenue.
B.price of the input doesn't exceed the price of the other inputs used in the firm's production.
C.marginal revenue product of the input is at least as much as the cost of hiring the input.
D.marginal revenue product of the input is greater than the marginal revenue product of other inputs the firm is using.


18. Suppose a competitive firm in both the factor and product markets is using inputs such that the marginal product of labor is 16 and the price of labor is $4 per unit, while the marginal product of capital is 12 and the price of capital is $3 per unit. At the maximum profit equilibrium point, the price of the product is:
A.$3.
B.$4.
C.$.25.
D.between $3 and $4.


19. The profit-maximizing firm using two outputs, x and y will employ inputs so that:
A.Px = Py
B.MPx = MPy.
C.MRPx = MRPy.
D.MRPx / Px = MRPy / Py = 1.


20. Other things being equal, the demand for a factor of production will be less elastic if the demand for the final product it produces is:
A.elastic.
B.inelastic.
C.unitary elastic.
D.perfectly elastic.


21. A firm combines two resources, A and B, to produce an output Q. Their respective marginal revenue products are $30 and $21. A costs $15 a unit and B $7 a unit. To reduce the cost of Q:
A.more B and less A should be used.
B.more A and less B should be used.
C.more of both resources should be used.
D.less of both resources should be used.


22.

___________________________________________________________

Units of resource012345

Total product01018242830

Total revenue ($)03054728490
___________________________________________________________
R-3 REF 27-36 (REF27036)

Refer to the above table. The price of the product being produced by this resource is:
A.$1.
B.$2.
C.$3.
D.$4.



23.

___________________________________________________________

Units of resource012345

Total product01018242830

Total revenue ($)03054728490
___________________________________________________________
R-3 REF 27-36 (REF27036)

Refer to the above table. How many units of the resource would the profit-maximizing firm use if the price of the resource was $18.00?
A.1
B.2
C.3
D.4



24. A firm operating in competitive input and output markets purchases new technology, which shifts the total product schedule from A to B, as shown in the data below. At the market wage rate of $30 and product
price of $5 this firm will:

Schedule ASchedule B
Number ofTotalNumber ofTotal
workersproductworkersproduct
130135
240247
348357
454465
559571
663676

A.hire the same number of laborers in both situations.
B.increase the number of laborers hired from 4 to 6.
C.decrease the number of laborers hired from 4 to 3.
D.increase the number of laborers hired from 4 to 5.


25. A competitive employer will hire inputs up to the point where the:
A.marginal product of the input reaches a maximum.
B.price of the input equals the price of the output.
C.price of the input equals the marginal product of the input.
D.price of the input equals the marginal revenue product of the input.



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