UNIT 4 PRACTICE EXAM 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 2. The demand for a resource is derived from the A. marginal productivity of the resource and price of the good or service produced from it B. marginal productivity of the resource and the price of the resource C. price of the resource and the price of the good or service produced from it D. price of the resource and the quantity of the resource demanded 3. 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 MRC 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 Use the following table for a purely competitive market to answer questions 4-7. 4. At a wage rate of $15, the firm will choose to employ A. 2 workers B. 3 workers C. 4 workers D. 5 workers 5. At a wage rate of $30, the firm will choose to employ A. 2 workers B. 3 workers C. 4 workers D. 5 workers 6. If the product price increases to a constant $8, then at a wage rate of $30 the firm will choose to employ A. 2 workers B. 3 workers C. 4 workers D. 5 workers Use the graph below to answer questions 7-10. Assume that the quantities of other resources the firm employs remain constant. 7. If the product the firm produces sells for a constant $3 per unit, the marginal revenue product of the 4th unit of the resource is A. $3 B. $6 C. $9 D. $12 8. If the firm's product sells for a constant $3 per unit and the price of the resource is a constant $15, the firm will employ how many units of the resource? A. 2 B. 3 C. 4 D. 5 9. If the firm can sell 14 units of output at a price of $1 per unit and 18 units of output at a price of $0.90 per unit, the marginal revenue product of the 3rd unit of the resource is A. $4 B. $3.60 C. $2.20 D. $0.40
10. If the firm can sell 8 units at a price of $1.50, 14 units at a price of $1.00, 18 units at a price of $0.90, 21 units at a price of $0.70, and 23 units at a price of $0.50, then the firm is A. maximizing profits at a product price of $0.50 B. minimizing its costs at a product price of $1.00 C. selling in an imperfectly competitive market D. selling in a purely competitive market 11. As a firm that sells its product in an imperfectly competitive market increases the quantity of a resource it employs, the marginal revenue product of that resource falls because A. the price paid by the firm for the resource falls B. the marginal product of the resource falls C. the price at which the firm sells its product falls D. both the marginal product and the price at which the firm sells its product fall 12. Which of the following would increase a firm's demand for a particular resource? A. an increase in the prices of complementary resources used by the firm B. a decrease in the demand for the firm's product C. an increase in the productivity of the resource D. an increase in the price of the particular resource 13. The substitution effect indicates that a firm will use A. more of an input whose relative price has decreased B. more of an input whose relative price has increased C. less of an input whose relative price has decreased D. less of an input whose relative price has remained constant 14. Two resource inputs, capital and labor, are complementary and used in fixed proportions. A decrease in the price of capital will A. increase the demand for labor B. decrease the demand for labor C. decrease the quantity demanded for labor D. have no effect because the relationship is fixed 16. 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 17. A business is employing inputs such that the marginal product of labor is 20 and the marginal product of capital is 45. The price of labor is $10 and the price of capital is $15. If the business wants to minimize costs, then it should A. use more labor and less capital B. use less labor and less capital C. use less labor and more capital D. make no change in resource use 18. Assume that a profit-maximizing computer disk manufacturer is employing resources so that 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 19. A firm that hires resources in a purely competitive market is not maximizing its profits when A. the marginal revenue product of every resource is equal to 1 B. the marginal revenue product of every resource is equal to its price C. the ratio of the marginal revenue product of every resource to its price is equal to 1 D. the ratio of the price of every resource to its marginal revenue product is equal to 1
Use the table below to answer the following question. 20. Assume that a purely competitive firm uses two resources -- labor (L) and capital (C) -- to produce a product. In which situation would the firm be maximizing profit? A. A B. B C. C D. D 21. A characteristic of a purely competitive labor market would be A. firms hiring different types of labor B. workers supplying labor under a union contract C. wage taker behavior by the firms D. price maker behavior by the firms 22. The supply curve for labor in a purely competitive market is upward sloping because A. opportunity costs are rising B. the marginal resource cost is constant C. the wage rate paid to workers falls D. the marginal revenue product rises 23. The individual firm which hires labor under purely competitive conditions faces a supply curve for labor which A. is perfectly inelastic B. is of unitary elasticity C. is perfectly elastic D. slopes upward from left to right 24. All of the following are characteristics of a monopsonist except: A. there is only a single buyer of a particular kind of labor B. the type of labor is relatively immobile C. the wage rate it must pay workers varies directly with the number of workers it employs D. the supply curve is the marginal resource cost curve 25. A monopsonist pays a wage rate which is A. greater than the marginal revenue product of labor B. equal to the marginal revenue product of labor C. equal to the firm's marginal labor cost D. less than the marginal revenue product of labor 26. If a firm employs resources in imperfectly competitive markets, to maximize its profits the marginal revenue product of each resource must equal A. its marginal product B. its marginal resource cost C. its price D. 1 27. Compared with a purely competitive labor market, a monopsonistic market will result in A. higher wage rates and a higher level of B. higher wage rates and a lower level of C. lower wage rates and a higher level of D. lower wage rates and a lower level of 28. Which would increase the demand for a particular type of labor? A. a decrease in the wages of that type of labor B. an increase in the prices of those resources which are substitutes for that type of labor C. an increase in the prices of the resources which are complements to that type of labor D. a decrease in the demand for the products produced by that type of labor 29. Industrial unions typically attempt to increase wage rates by A. imposing an above-equilibrium wage rate on employers B. increasing the demand for labor C. decreasing the supply of labor D. forming a bilateral monopoly
Use the graph below to answer questions 30-32. 30. If the firm employing labor were a monopsonist, the wage rate and the quantity of labor employed would be, respectively, A. $14 and 300 B. $13 and 400 C. $14 and 400 D. $13 and 300 31. But if the market for this labor were purely competitive, the wage rate and the quantity of labor employed would be, respectively, A. $14 and 300 B. $13 and 400 C. $14 and 400 D. $13 and 300 32. If the firm employing labor were a monopsonist and the workers were represented by an industrial union, the wage rate would be A. between $13 and $14 B. between $13 and $15 C. between $14 and $15 D. below $13 or above $15 Answer questions 33-36 on the basis of the following labor market diagram, where D is the demand curve for labor, S is the supply curve for labor, and MRC is the marginal resource (labor) cost. 33. If this were a purely competitive labor market, the number of workers hired and the wage rate in equilibrium would be A. 4,000 and $14 B. 4,000 and $8 C. 6,000 and $10 D. 8,000 and $12 34. If this were a monopsonistic labor market, the number of workers hired and the wage rate in equilibrium would be A. 4,000 and $14 B. 4,000 and $8 C. 6,000 and $10 D. 8,000 and $12 35. Suppose an inclusive union seeks to maximize the of workers with the monopsonist. If successful, the number of workers employed and the wage rate would be A. 4,000 and $14 B. 6,000 and $12 C. 6,000 and $10 D. 8,000 and $12 36. If the market were characterized as a bilateral monopoly, the number of workers hired and the wage rate in equilibrium would be A. 6,000 and $10 B. 4,000 and $14 C. 4,000 and $8 D. indeterminate 37. A firm pays an equilibrium wage of $10 an hour and the workers produce 10 units of output an hour. If the firm adopts an efficiency wage and it is successful, then the wage rate for these workers will A. rise and output will fall B. fall and output will rise C. rise and output will rise D. fall and output will fall 38. The price paid for a natural resource that is completely fixed in supply is A. profit B. interest C. rent D. a risk payment 39. In total, the supply of land is A. perfectly inelastic B. of unitary elasticity C. perfectly elastic D. elastic but not perfectly elastic
40. The economic rent from land will increase, ceteris paribus, whenever the A. price of land decreases B. demand for land increases C. demand for land decreases D. supply curve for land increases 41. Which of the following is most likely to shift the demand for aircraft mechanics to the right? (A) An increase in the demand for air travel (B) An increase in the price of a license necessary for aircraft mechanics (C) A decrease in the price of a license necessary for aircraft mechanics (D) A decrease in the demand for air travel (E) A decrease in the marginal productivity of aircraft mechanics 42. A firm is producing a given quantity of output by using labor, L, and capital, K. The marginal physical product of labor equals 5 bushels, while that of capital equals 10 bushels. In order to maximize its profit, (A) this firm should use less labor and more capital, provided the price of labor was $20, while the price of capital was $40. (B) this firm should use more labor and less capital, provided the price of labor was $20, while the price of capital was $40. (C) this firm should use less labor and more capital, provided the price of labor was $40, while the price of capital was $20. (D) this firm should use more labor and less capital, provided the price of labor was $40, while the price of capital was $20. (E) this firm should use less labor (raising MPP L ) and more capital (lowering MPP K ) until the two MPPs are equalized.
ANSWERS: 1. D 2. A 3. A 4. D 5. B 6. D 7. C 8. A 9. C 10. C 11. D 12. C 13. A 14. A 15. OOPS 16. D 17. C 18. D 19. A 20. B 21. C 22. A 23. C 24. D 25. D 26. B 27. D 28. B 29. A 30. D 31. C 32. B 33. C 34. B 35. C 36. D 37. C 38. C 39. A 40. B 41. A 42. C