Chapter 12 Testbank
1. In competitive labor markets, ____ demand labor and ____ supply labor.
A. firms; labor unions
B. labor unions; firms
C. workers; firms
D. firms, workers
Badr works for a landscape contractor, generating gross revenues of $50 per hour. Non-labor
variable costs total $10 per hour. Badr loves to garden, and would be willing to work for $15 per
hour. Assume that the labor market is perfectly competitive.
2. Badr's reservation price for an hour of work is _____ per hour.
A. $10
B. $15
C. $50
D. $40
3. For each hour that Badr works, the landscape company's net benefits are
A. equal to Badr's reservation price.
B. $50 minus Badr's wage.
C. $40 minus Badr's wage.
D. zero, because non-labor variable costs and Badr's wage completely consume revenues.
,4. The difference between the net revenue generated by Badr and Badr's reservation price will
eventually
A. be captured by Badr in the form of rent.
B. be captured by Badr's employer in the form of profit.
C. cause wages in the landscape market to fall to $15.
D. be split evenly between Badr and the landscape company.
5. In a competitive labor market, if a firm pays a worker less than that worker's VMP, then in the
long run
A. the firm will earn positive economic profits.
B. competing firms will be able to hire the worker away, driving wages up to VMP.
C. the worker will have no incentive to work hard.
D. the supply of workers will fall.
6. What is the extra output received from the hiring of an extra worker?
A. Total product divided by Wage
B. Wage times Marginal Product
C. Marginal product
D. Average product
,7. The value of marginal product
A. equals marginal product times net price.
B. equals total product divided by net price.
C. equals marginal product divided by net price.
D. equals average product times the wage rate.
8. The marginal product of the 14th worker is 8 and the firm sells its output for $4 per unit. If labor is
the only variable cost, the value of the 14th worker's marginal product is
A. $2.
B. $4.
C. $12.
D. $32.
The relationship between labor usage and output at the local coffee shop is summarized in the
table below. The price of a cup of espresso is $1.25 and no other inputs are required.
9. The marginal product of the fourth worker is _____.
A. 70
B. 60
C. 17.5
D. 10
, 10. The marginal product of the third worker is _____ than the marginal product of the second worker
which means _____.
A. greater; diminishing returns are absent
B. less; diminishing returns are present
C. neither greater nor less; the third worker will be hired
D. less; the third worker will never be hired
11. The benefit to the coffee shop of hiring the fifth worker is
A. 70 cups of espresso.
B. 75 cups of espresso.
C. $93.75.
D. $6.25.
12. The value of marginal product for the first worker is _____.
A. 25 cups of espresso
B. $31.25
C. $25
D. $20
13. The most the coffee shop would pay the third worker is _____.
A. $75
B. $60
C. $18.75
D. $15
1. In competitive labor markets, ____ demand labor and ____ supply labor.
A. firms; labor unions
B. labor unions; firms
C. workers; firms
D. firms, workers
Badr works for a landscape contractor, generating gross revenues of $50 per hour. Non-labor
variable costs total $10 per hour. Badr loves to garden, and would be willing to work for $15 per
hour. Assume that the labor market is perfectly competitive.
2. Badr's reservation price for an hour of work is _____ per hour.
A. $10
B. $15
C. $50
D. $40
3. For each hour that Badr works, the landscape company's net benefits are
A. equal to Badr's reservation price.
B. $50 minus Badr's wage.
C. $40 minus Badr's wage.
D. zero, because non-labor variable costs and Badr's wage completely consume revenues.
,4. The difference between the net revenue generated by Badr and Badr's reservation price will
eventually
A. be captured by Badr in the form of rent.
B. be captured by Badr's employer in the form of profit.
C. cause wages in the landscape market to fall to $15.
D. be split evenly between Badr and the landscape company.
5. In a competitive labor market, if a firm pays a worker less than that worker's VMP, then in the
long run
A. the firm will earn positive economic profits.
B. competing firms will be able to hire the worker away, driving wages up to VMP.
C. the worker will have no incentive to work hard.
D. the supply of workers will fall.
6. What is the extra output received from the hiring of an extra worker?
A. Total product divided by Wage
B. Wage times Marginal Product
C. Marginal product
D. Average product
,7. The value of marginal product
A. equals marginal product times net price.
B. equals total product divided by net price.
C. equals marginal product divided by net price.
D. equals average product times the wage rate.
8. The marginal product of the 14th worker is 8 and the firm sells its output for $4 per unit. If labor is
the only variable cost, the value of the 14th worker's marginal product is
A. $2.
B. $4.
C. $12.
D. $32.
The relationship between labor usage and output at the local coffee shop is summarized in the
table below. The price of a cup of espresso is $1.25 and no other inputs are required.
9. The marginal product of the fourth worker is _____.
A. 70
B. 60
C. 17.5
D. 10
, 10. The marginal product of the third worker is _____ than the marginal product of the second worker
which means _____.
A. greater; diminishing returns are absent
B. less; diminishing returns are present
C. neither greater nor less; the third worker will be hired
D. less; the third worker will never be hired
11. The benefit to the coffee shop of hiring the fifth worker is
A. 70 cups of espresso.
B. 75 cups of espresso.
C. $93.75.
D. $6.25.
12. The value of marginal product for the first worker is _____.
A. 25 cups of espresso
B. $31.25
C. $25
D. $20
13. The most the coffee shop would pay the third worker is _____.
A. $75
B. $60
C. $18.75
D. $15
