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1 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) According to the marginal productivity theory of income distribution, each resource owner receives income: |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | equal to the value of her contribution to total output. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | in proportion to her need. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | in proportion to the amount of property she inherits. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | equal to marginal product divided by price. |
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2 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) To find the amount by which the production of an additional worker increases a purely competitive firm's total revenue: |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | subtract the wage from marginal product. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | divide marginal product by the wage rate. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | subtract marginal cost from marginal revenue. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | multiply marginal product by product price. |
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3 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) All else equal, the demand for labor will be most elastic when labor and capital are: |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | highly substitutable and product demand is elastic. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | highly substitutable and product demand is inelastic. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | not easily substituted and product demand is elastic. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | not easily substituted and product demand is inelastic. |
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4 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) Compared to an otherwise identical firm selling its output competitively, a firm with monopoly power: |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | must lower its price to sell additional output, making labor demand more elastic. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | must lower its price to sell additional output, so MRP declines faster than MP. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | hires more workers. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | must pay a higher wage. |
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5 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) Use the following diagram to answer the next question.
![](/sites/dl/free/0073511447/883740/ch12_q5.jpg) (12.0K)
Refer to the diagram. Initially, labor demand is given by D1. If labor and capital are complementary inputs, a decrease in the price of capital will cause: |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | a shift in labor demand to D2. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | a shift in labor demand to D3. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | either a shift in labor demand to D2 or D3, depending on the relative strengths of the substitution and output effects. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | a move from a to b along D1. |
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6 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) Assume a candle manufacturer is employing two resources L and C in such quantities that the MRPs are $20 and $15, respectively. The prices of the resources are $16 and $12, respectively. This firm: |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | is using the least-cost combination of resources to produce its output but should use more of both. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | is using the least-cost combination of resources to produce its output but should use less of both. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | should use relatively more C. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | should use relatively more L. |
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7 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) Suppose hiring an extra worker increases a firm's output from 90 to 100 units per hour. If the firm has to reduce its price from $1 to $.99 to sell the additional output, the marginal revenue product of the last worker is: |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | $.99. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | $9.00. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | $9.90. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | $10.00. |
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8 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) The "derived demand" concept suggests that an increase in the demand for computers will: |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | increase the demand for computer software. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | decrease the demand for typewriters. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | increase the price of computers. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | increase the demand for computer design engineers. |
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9 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) Use the data from the following table for the next question. A law firm has discovered the following relationship between the number of junior associates and its total revenue.
![](/sites/dl/free/0073511447/883740/ch12_q9.jpg) (9.0K)
Refer to the data. If the market pay for a junior associate is $1500, the law firm should hire: |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | 2 associates. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | 3 associates. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | 4 associates. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | 5 associates. |
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10 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) For a firm that both sells its output and buys its inputs in purely competitive markets, the labor demand curve: |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | slopes downward and the labor supply curve is perfectly elastic. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | slopes downward and the labor supply curve is upsloping. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | is perfectly elastic and the labor supply curve is upsloping. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | is perfectly elastic and the labor supply curve is perfectly inelastic. |
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