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| 1 | |
A simultaneous increase in product price and the price of substitute input capital will: |
| | A) | increase the demand for labor |
| | B) | increase the demand for labor if the substitution effect is stronger than the output effect |
| | C) | increase the demand for labor if the output effect is stronger than the substitution effect |
| | D) | reduce the demand for labor |
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| 2 | |
All else equal, the demand for labor will be least elastic when labor and capital are: |
| | A) | highly substitutable and labor costs are a small proportion of total costs |
| | B) | highly substitutable and labor costs are a large proportion of total costs |
| | C) | not easily substituted and labor costs are a small proportion of total costs |
| | D) | not easily substituted and labor costs are a large proportion of total costs |
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| 3 | |
Assume the Apex Manufacturing Company operates in competitive labor and product markets. Its: |
| | A) | labor demand curve is perfectly elastic at the going wage |
| | B) | labor demand curve is identical with its marginal product of labor curve |
| | C) | labor supply curve is perfectly elastic at the going wage |
| | D) | labor supply curve is upward sloping |
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| 4 | |
The demand for carpenters results from the demand for housing. This is an example of: |
| | A) | the relatively high elasticity of labor demand |
| | B) | the inverse relationship between the price of labor and the quantity demanded |
| | C) | the optimal hiring rule for labor |
| | D) | the derived demand for labor |
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| 5 | |
Use the following diagram to answer the next question.
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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: |
| | A) | a shift in labor demand to D2 |
| | B) | a shift in labor demand to D3 |
| | C) | either a shift in labor demand to D2 or D3, depending on the relative strengths of the substitution and output effects |
| | D) | a move from a to b along D1 |
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| 6 | |
Use the following diagram to answer the next question.
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Refer to the diagram. Initially, labor demand is given by D1. A move from D1 to D3 could be caused by either: |
| | A) | an increase in labor productivity or a decrease in the wage rate |
| | B) | an increase in the price of a complementary input or a decrease in the wage rate |
| | C) | a decrease in the price of a substitute input or a decrease in the wage rate |
| | D) | an increase in labor productivity or an increase in demand for the product this labor is helping to produce |
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| 7 | |
Other things equal, the demand for labor will be more elastic: |
| | A) | the greater the demand for the product |
| | B) | the more substitutable is labor with other inputs |
| | C) | higher the price of capital |
| | D) | smaller the elasticity of product demand |
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| 8 | |
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: |
| | A) | is using the least-cost combination of resources to produce its output but should use more of both |
| | B) | is using the least-cost combination of resources to produce its output but should use less of both |
| | C) | should use relatively more C |
| | D) | should use relatively more L |
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| 9 | |
Suppose an additional unit of labor increases a firm's output from 90 to 100 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: |
| | A) | $.99 |
| | B) | $9.00 |
| | C) | $9.90 |
| | D) | $10.00 |
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| 10 | |
If the price of capital is reduced by 10% and yet a particular firm makes no change in the relative quantities of capital and labor employed, that is, its ratio of capital to labor is unchanged, then: |
| | A) | the substitution effect is stronger than the output effect |
| | B) | the demand for labor is perfectly inelastic |
| | C) | the supply of capital is perfectly elastic |
| | D) | labor and capital are used in fixed proportions |
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