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If the marginal physical product of more labor is twice as high as the marginal physical product of more machinery, a profit-maximizing firm will


A) reduce the labor used and increase the machinery used if labor costs half as much as machinery.
B) reduce the labor used and increase the machinery used if labor and machinery cost the same amount.
C) reduce the labor used and increase the machinery used only if labor costs more than twice as much as machinery.
D) reduce the labor used and increase the machinery used only if labor costs exactly twice as much as machinery.

E) A) and B)
F) B) and C)

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The optimal level of resource use comes when


A) MRP exceeds input price.
B) MRP is less than input price.
C) MRP equals input price.
D) use of the resource exhausts the producer's funds.

E) All of the above
F) C) and D)

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Use the information in the table below to answer the following question(s) . The firm hires labor competitively and sells its product in a competitive price-taker market. Table 12-6 Use the information in the table below to answer the following question(s) . The firm hires labor competitively and sells its product in a competitive price-taker market. Table 12-6 Refer to Table 12-6. If the market wage rate is $25 per day, how many workers should the firm hire if it wants to maximize profits? A) 4 B) 5 C) 6 D) 7 Refer to Table 12-6. If the market wage rate is $25 per day, how many workers should the firm hire if it wants to maximize profits?


A) 4
B) 5
C) 6
D) 7

E) C) and D)
F) B) and D)

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The supply of human capital to a particular use is


A) perfectly inelastic in the short run.
B) perfectly elastic in the long run.
C) more inelastic in the short run since it takes time for persons to acquire a particular skill.
D) more elastic in the short run since individuals who already possess the particular skill can be attracted into the labor force in the short run.

E) None of the above
F) B) and C)

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Profit-maximizing firms will expand their employment of each variable resource until


A) the Marginal Revenue Product (MRP) of the resource is just equal to the price of the resource.
B) other firms realize they can't compete.
C) the MRP of the resource is below the cost of the resource.
D) the MRP of the resource is above the cost of the resource.

E) A) and B)
F) A) and C)

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A

Suppose a U.S. automotive manufacturer was considering moving to Mexico to take advantage of the lower wage rates for unskilled Mexican labor. The typical Mexican worker could produce 20 cars per day, while the firm's typical U.S. worker can produce 50 cars per day. If the firm currently pays its U.S. workers an hourly wage of $25, economic theory suggests that the firm should


A) move to Mexico if the Mexican hourly wage is less than $25.
B) move to Mexico if the Mexican hourly wage is $15.
C) move to Mexico if the Mexican hourly wage is $12.
D) only move to Mexico if the Mexican hourly wage is less than $10.

E) A) and D)
F) A) and C)

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Which of the following resources will have the most inelastic supply in the short run?


A) dentists
B) receptionists
C) waiters
D) flight attendants

E) B) and C)
F) A) and D)

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Developments in the computer software industry have made it extremely easy for firms to keep their books, conduct their own audits, and fill out the various tax forms. If accountants are an input in the accounting services industry, what will likely happen in the market for accountants? Is there a difference between the short run and the long run?

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We would expect the demand for accountan...

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Table 12-4 Table 12-4 Refer to Table 12-4. What is total output when 4 workers are hired? A) 30 B) 40 C) 120 D) 160 Refer to Table 12-4. What is total output when 4 workers are hired?


A) 30
B) 40
C) 120
D) 160

E) A) and B)
F) All of the above

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Ten cases of spring water are sold for $6 each, and the marginal product of the last unit of labor is 5. If the price of a case increases from $6 to $8, then the marginal revenue product of the last unit of labor would


A) decrease by $10.
B) increase by $40.
C) decrease by $30.
D) increase by $10.
E) not change.

F) A) and D)
G) All of the above

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A technological advance that increases labor productivity will


A) lower wages.
B) decrease the demand for labor as fewer workers are needed.
C) decrease the supply of labor as fewer workers are needed.
D) increase the demand for labor as MP rises.
E) decrease the demand for labor as MP falls.

F) A) and B)
G) A) and C)

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D

Table 12-2 Table 12-2 Refer to Table 12-2. This table describes the number of baseballs a manufacturer can produce per day with different quantities of labor. Each baseball sells for $5 in a competitive market. What is the total revenue per day that the firm will earn if it employs five workers? A) $500. B) $300. C) $2200. D) $2500. Refer to Table 12-2. This table describes the number of baseballs a manufacturer can produce per day with different quantities of labor. Each baseball sells for $5 in a competitive market. What is the total revenue per day that the firm will earn if it employs five workers?


A) $500.
B) $300.
C) $2200.
D) $2500.

E) B) and C)
F) All of the above

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Which of the following expresses the correct decision-making rule for a profit-maximizing firm hiring units of labor?


A) If the MRP was rising, less labor would be employed as time passed.
B) The firm should continue to hire workers as long as their MRP is greater than the wage rate.
C) The firm should continue to hire workers until the total costs of all workers equals the total revenue from the output of the workers.
D) The firm should continue to hire workers until the wage rate equals the price of the product.

E) A) and B)
F) A) and C)

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An increase in the demand for a resource


A) will cause the price of that resource to fall.
B) may be the result of a decrease in the demand for products utilizing this resource.
C) will cause the price of the resource to fall by a smaller amount in the short run than in the long run.
D) will increase the price of the resource and, thereby, increase the incentive of potential suppliers to provide the resource in the future.

E) None of the above
F) All of the above

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D

The demand for a resource is generally more


A) elastic in the short run because it takes time to alter the ratio of resources used in many production processes.
B) inelastic in the short run because it takes time to alter the ratio of resources used in many production processes.
C) elastic in the short run because an increase in the price of the resource may not be expected to last.
D) inelastic in the short run because once resource suppliers find out they can charge a higher price, they will do so in the long run.

E) A) and D)
F) B) and C)

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An improvement in technology that allows workers to process twice as many insurance forms in an hour than before will cause


A) more labor to be employed because its marginal revenue product has fallen.
B) an increase in insurance premiums.
C) fewer workers to be employed because their marginal revenue product has decreased.
D) more workers to be employed because their marginal revenue product has increased.
E) fewer workers to be employed because their marginal revenue product has increased.

F) D) and E)
G) A) and D)

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When the price of a resource is set below equilibrium,


A) excess demand for the resource will occur.
B) excess supply of the resource will result.
C) the supply of the resource will be inelastic.
D) the demand for the resource will be inelastic.

E) A) and D)
F) A) and C)

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Figure 12-3 Figure 12-3 Refer to Figure 12-3. This figure depicts labor demand and supply in a nonunionized labor market. The original equilibrium is at point A. If a labor union subsequently establishes a union shop and negotiates an hourly wage of $20, then the employment level A) increases from 6,000 to 10,000. B) increases from 3,000 to 10,000. C) decreases from 10,000 to 3,000. D) decreases from 6,000 to 3,000. Refer to Figure 12-3. This figure depicts labor demand and supply in a nonunionized labor market. The original equilibrium is at point A. If a labor union subsequently establishes a union shop and negotiates an hourly wage of $20, then the employment level


A) increases from 6,000 to 10,000.
B) increases from 3,000 to 10,000.
C) decreases from 10,000 to 3,000.
D) decreases from 6,000 to 3,000.

E) A) and C)
F) A) and D)

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Which of the following labor resources will likely have the most elastic supply schedule in the short run?


A) nuclear physicists
B) surgeons
C) retail cashiers
D) graduate-level math professors

E) All of the above
F) C) and D)

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Suppose the United Auto Workers' Union succeeded in obtaining a 10 percent increase in the wages of its workers and that the wage increase caused automobile prices to rise. Employment in the auto industry would be most likely to decline significantly if


A) the demand for American-made automobiles was highly elastic.
B) the supply of foreign-produced automobiles was highly inelastic.
C) American consumers considered foreign automobiles a poor substitute for American automobiles.
D) the demand for American automobiles was relatively constant and highly inelastic.

E) None of the above
F) All of the above

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