TEST BANK FOR CHAPTER 13 : PRICING IN INPUTS MARKETS

MULTIPLE CHOICE 1. A firm’s demand for labor is known as a “derived demand” because a. the firm gains utility from hiring more labor. b. the amount of labor hired depends upon how much output the firm can sell. c. the wage rate paid to workers is derived from the market for labor. d. it is derived from the demand for capital. ANS: b 2. If the price of an input falls, a firm would increase the use of that input for two reasons: a. The input is now more productive, and the firm can substitute this input for other relatively more expensive inputs. b. The input is now more productive, and overall production costs are now lower, meaning a firm may choose to increase production. c. Overall production costs are now lower and the firm can substitute this input for other relatively more expensive inputs. d. Overall production costs are now lower and the firm will have more of other inputs to use with the one in question. ANS: c 3. In an input market, economic rent is defined as a. the total remuneration paid to a factor of production. b. the minimum amount required to retain a factor of production in its present use. c. the total cost for a firm of renting land, equipment, and buildings. d. the extent to which payments to a factor of production exceed the minimum amount required to retain it in its present use. ANS: d 4. If a factor of production comes to have more and more alternative uses, its supply curve to any one use a. remains unchanged. b. becomes more inelastic. c. becomes more elastic. d. may move in any direction. ANS: c 5. A firm will hire additional units of any input up to the point where a. the marginal productivity of the input is maximized. b. the marginal cost of employing the input is minimized. c. the expense of employing the last unit is equal to the revenue brought in by the last unit. d. the revenue brought in by the input is maximized. ANS: c 1 This study source was downloaded by from CourseH on 03-23-2022 09:35:46 GMT -05:00 TEST BANK FOR CHAPTER13 : PRICING IN INPUT MARKETS Chapter 13: Pricing in Input Markets 6. An input’s marginal revenue product is given by a. the input’s marginal expense times marginal revenue. b. the input’s marginal expense times the input’s marginal physical productivity. c. marginal revenue times the number of units employed. d. the input’s marginal physical productivity times marginal revenue of the firm’s output. ANS: d 7. If a firm is a price taker in the input market but not in the output market, its marginal value product of labor a. exceeds the marginal revenue product of labor. b. equals its marginal revenue product of labor. c. is less than the marginal revenue product of labor. d. equals the marginal physical product of labor. ANS: a 8. If a firm is a price taker in both the input and output markets, its marginal revenue product of labor is given by a. the price of its output times labor’s marginal physical productivity. b. the marginal value product of labor. c. the marginal revenue product of capital times the ratio of the wage rate to the rental rate on capital. d. all of the above. ANS: d 9. A profit-maximizing firm will never hire that quantity of a factor of production for which that factor has an increasing marginal productivity because a. it would not be maximizing output. b. it would not be maximizing the productivity of labor. c. it would not be minimizing costs. d. it would not be maximizing profits. ANS: d 10. The substitution effect of a change in wage rate on a firm’s demand for labor input will be more significant a. the greater the change in output. b. the more sharply curved are the firm’s isoquants. c. the flatter are the firm’s isoquants. d. the larger the quantity of labor employed. ANS: b 11. The output effect of a change in the wage rate on a firm’s demand for labor input will be greater a. the larger the share of labor costs in total costs and the greater the price elasticity of demand for output. b. the larger the share of labor costs in total costs and the smaller the price elasticity of demand for output. c. the larger the share of labor costs in total costs and the higher the quantity demanded. d. the smaller the possibilities of substituting capital for labor. ANS: a 2 This study source was downloaded by from CourseH on 03-23-2022 09:35:46 GMT -05:00 Chapter 13: Pricing in Input Markets 12. The notion that when the price of an input falls, a firm’s marginal cost curve shifts down and overall production increases so that more of every input is employed is known as a. the output effect. b. the substitution effect. c. the input effect. d. the cost effect. ANS: a 13. The size of the reduction in quantity of labor hired by a firm due to an increase in the wage rate depends upon all of the following except a. what percentage of total costs are made up of labor costs. b. how much quantity demanded in the output market will be reduced by a higher price. c. the capital to labor ratio before the wage increase. d. how easily other inputs can be substituted for labor. ANS: c 14. Suppose capital and labor must be used in fixed proportions to produce widgets and that the price elasticity of demand for widgets is zero. Then the wage elasticity of demand for labor by widget makers will be a. +1. b. –1. c. 0. d. infinite. ANS: c 15. If the wage rate ri