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| 1 | |
The prices paid for resources affect |
| | A) | the money incomes of households in the economy |
| | B) | the allocation of resources among different firms and industries in the economy |
| | C) | the quantities of different resources employed to produce a particular product |
| | D) | all of the above |
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| 2 | |
The demand for a resource is derived from the |
| | A) | demand for the product or service it is used to produce |
| | B) | supply of the resource |
| | C) | price of the resource |
| | D) | efficiency of the method of production |
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| 3 | |
A characteristic of a purely competitive labour market would be |
| | A) | firms hiring different types of labour |
| | B) | workers supplying labour under a union contract |
| | C) | wage taker behaviour by the firms |
| | D) | price maker behaviour by the firms |
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| 4 | |
A firm that hires resources in a purely competitive market is maximizing its profits when |
| | A) | the marginal revenue product is above zero |
| | B) | the marginal revenue product of every resource is equal to its price |
| | C) | the marginal factor cost is equal to 1 |
| | D) | the marginal factor cost is equal to its price |
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| 5 | |
Suppose firm X is considering hiring an extra worker. Currently, it has 20 workers, and it has calculated that hiring the 21st worker would mean MFC>MRP. As a result |
| | A) | the firm should hire the extra worker, as this would improve the firm's profits. |
| | B) | the firm should reduce the current number of workers, even if it means that MRP=MRC with 20 workers. |
| | C) | the firm should not hire the 21st worker. |
| | D) | without knowing TR and TC this question cannot be answered. |
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| 6 | |
At a wage rate of $15, this firm will choose to employ
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| | A) | 2 workers |
| | B) | 3 workers |
| | C) | 4 workers |
| | D) | 5 workers |
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| 7 | |
The law of diminishing returns explains why |
| | A) | the MRP of an input in a purely competitive market decreases as a firm increases the quantity of an employed resource |
| | B) | the MFC of an input in a purely competitive market decreases as a firm increases the quantity of an employed resource |
| | C) | resource demand is a derived demand |
| | D) | there are substitution and output effects for resources |
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| 8 | |
A perfectly competitive seller's factor demand curve is |
| | A) | identical to an imperfectly competitive seller's factor demand curve |
| | B) | perfectly horizontal |
| | C) | less elastic than an imperfectly competitive seller's factor demand curve |
| | D) | more elastic than an imperfectly competitive seller's factor demand curve |
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| 9 | |
The substitution effect indicates that a firm will use |
| | A) | less of an input whose relative price has decreased |
| | B) | less of an input whose relative price has remained constant |
| | C) | more of an input whose relative price has decreased |
| | D) | more of an input whose relative price has increased |
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| 10 | |
Two resource inputs, capital and labour, are complementary and used in fixed proportions. A decrease in the price of capital will |
| | A) | increase the quantity of labour demanded |
| | B) | increase the demand for labour |
| | C) | decrease the demand for labour |
| | D) | have no effect because the relationship is fixed |
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| 11 | |
Suppose resource A and resource B are substitutes and the price of A increases. If the output effect is greater than the substitution effect, |
| | A) | the quantity of A employed by the firm will increase and the quantity of B employed will decrease |
| | B) | the quantity of both A and B employed by the firm will decrease |
| | C) | the quantity of both A and B employed by the firm will increase |
| | D) | the quantity of A employed will decrease and the quantity of B employed will increase |
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| 12 | |
Which of the following would result in an increase in the elasticity of demand for a particular resource? |
| | A) | an increase in the rate at which the marginal product of that resource declines |
| | B) | a decrease in the elasticity of demand for the product which the resource helps to produce |
| | C) | an increase in the percentage of the firm's total costs accounted for by the resource |
| | D) | a decrease in the number of other resources which are good substitutes for the particular resource |
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| 13 | |
A firm is allocating its expenditure for resources in a way that will result in the least total cost of producing any given output when the |
| | A) | amount the firm spends on each resource is the same |
| | B) | marginal revenue product of each resource is the same |
| | C) | marginal product of each resource is the same |
| | D) | marginal product per dollar spent on the last unit of each resource is the same |
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| 14 | |
A business is employing inputs such that the marginal product of labour is 20 and the marginal product of capital is 45. The price of labour is $10 and the price of capital is $15. If the business wants to maximize profits, then it should |
| | A) | use more labour and less capital |
| | B) | use less labour and less capital |
| | C) | use less labour and more capital |
| | D) | make no change in resource use |
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| 15 | |
Assume that a profit-maximizing computer disk manufacturer is planning to employ more resources. The MRP of the last unit hired for resource X is $240 and the MRP of the last unit hired for resource Y is $150. The price of resource X is $80 and the price of resource Y is $50. The firm should |
| | A) | hire more of resource X and less of resource Y |
| | B) | hire less of resource X and more of resource Y |
| | C) | hire less of both resource X and resource Y |
| | D) | hire more of both resource X and resource Y |
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| 16 | |
A major criticism of the marginal productivity theory of income distribution is that |
| | A) | labour markets are often subject to imperfect competition |
| | B) | the theory suggests that there eventually will be equality in incomes |
| | C) | purely competitive firms are only interested in profit maximization |
| | D) | the demand for labour resources is price elastic |
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