Chapter 27

1. The prices paid for resources affect
A.the money incomes of households in the economy
B.the allocation of resources among different firms and industries in the economy
C.the quantities of different resources employed to produce a particular product
D.all of the above


2. The study of the pricing of resources tends to be complex because
A.supply and demand do not determine resource prices
B.economists do not agree on the basic principles of resource pricing
C.the basic principles of resource pricing must be varied and adjusted when applied to particular resource markets
D.resource pricing is essentially an ethical question


3. The demand for a resource is derived from the
A.marginal productivity of the resource and price of the good or service produced from it
B.marginal productivity of the resource and the price of the resource
C.price of the resource and the price of the good or service produced from it
D.price of the resource and the quantity of the resource demanded


4. The law of diminishing returns explains why
A.the MRP of an input in a purely competitive market decreases as a firm increases the quantity of an employed resource
B.the MRC of an input in a purely competitive market decreases as a firm increases the quantity of an employed resource
C.resource demand is a derived demand
D.there are substitution and output effects for resources


5.
The following table is for a purely competitive market.

R-1 27a

At a wage rate of $15, the firm will choose to employ
A.2 workers
B.3 workers
C.4 workers
D.5 workers



6.
The following table is for a purely competitive market.

R-1 27a

At a wage rate of $30, the firm will choose to employ
A.2 workers
B.3 workers
C.4 workers
D.5 workers



7.
The following table is for a purely competitive market.

R-1 27a

If the product price increases to a constant $8, then at a wage rate of $30 the firm will choose to employ
A.2 workers
B.3 workers
C.4 workers
D.5 workers



8.
Assume that the quantities of other resources the firm employs remain constant.

R-2 27b

If the product the firm produces sells for a constant $3 per unit, the marginal revenue product of the 4th unit of the resource is
A.$3
B.$6
C.$9
D.$12



9.
Assume that the quantities of other resources the firm employs remain constant.

R-2 27b

If the firm's product sells for a constant $3 per unit and the price of the resource is a constant $15, the firm will employ how many units of the resource?
A.2
B.3
C.4
D.5



10.
Assume that the quantities of other resources the firm employs remain constant.

R-2 27b

If the firm can sell 14 units of output at a price of $1 per unit and 18 units of output at a price of $0.90 per unit, the marginal revenue product of the 3rd unit of the resource is
A.$4
B.$3.60
C.$2.20
D.$0.40



11.
Assume that the quantities of other resources the firm employs remain constant.

R-2 27b

If the firm can sell 8 units at a price of $1.50, 14 units at a price of $1.00, 18 units at a price of $0.90, 21 units at a price of $0.70, and 23 units at a price of $0.50, then the firm is
A.maximizing profits at a product price of $0.50
B.minimizing its costs at a product price of $1.00
C.selling in an imperfectly competitive market
D.selling in a purely competitive market



12. As a firm that sells its product in an imperfectly competitive market increases the quantity of a resource it employs, the marginal revenue product of that resource falls because
A.the price paid by the firm for the resource falls
B.the marginal product of the resource falls
C.the price at which the firm sells its product falls
D.both the marginal product and the price at which the firm sells its product fall


13. Which of the following would increase a firm's demand for a particular resource?
A.an increase in the prices of complementary resources used by the firm
B.a decrease in the demand for the firm's product
C.an increase in the productivity of the resource
D.an increase in the price of the particular resource


14. The substitution effect indicates that a firm will use
A.more of an input whose relative price has decreased
B.more of an input whose relative price has increased
C.less of an input whose relative price has decreased
D.less of an input whose relative price has remained constant


15. Suppose resource A and resource B are substitutes and the price of A increases. If the output effect is greater than the substitution effect,
A.the quantity of A employed by the firm will increase and the quantity of B employed will decrease
B.the quantity of both A and B employed by the firm will decrease
C.the quantity of both A and B employed by the firm will increase
D.the quantity of A employed will decrease and the quantity of B employed will increase


16. Two resource inputs, capital and labor, are complementary and used in fixed proportions. A decrease in the price of capital will
A.increase the demand for labor
B.decrease the demand for labor
C.decrease the quantity demanded for labor
D.have no effect because the relationship is fixed


17. Which of the following would result in an increase in the elasticity of demand for a particular resource?
A.an increase in the rate at which the marginal product of that resource declines
B.a decrease in the elasticity of demand for the product which the resource helps to produce
C.an increase in the percentage of the firm's total costs accounted for by the resource
D.a decrease in the number of other resources which are good substitutes for the particular resource


18. The demand for labor would most likely become more inelastic as a result of an increase in the
A.elasticity of the demand for the product that the labor produces
B.time for employers to make technological changes or purchase new equipment
C.proportion of labor costs to total costs
D.rate at which marginal revenue product declines


19. A firm is allocating its expenditure for resources in a way that will result in the least total cost of producing any given output when the
A.amount the firm spends on each resource is the same
B.marginal revenue product of each resource is the same
C.marginal product of each resource is the same
D.marginal product per dollar spent on the last unit of each resource is the same


20. A business is employing inputs such that the marginal product of labor is 20 and the marginal product of capital is 45. The price of labor is $10 and the price of capital is $15. If the business wants to minimize costs, then it should
A.use more labor and less capital
B.use less labor and less capital
C.use less labor and more capital
D.make no change in resource use


21. Assume that a profit-maximizing computer disk manufacturer is employing resources so that the MRP of the last unit hired for resource X is $240 and the MRP of the last unit hired for resource Y is $150. The price of resource X is $80 and the price of resource Y is $50. The firm should
A.hire more of resource X and less of resource Y
B.hire less of resource X and more of resource Y
C.hire less of both resource X and resource Y
D.hire more of both resource X and resource Y


22. A firm that hires resources in a purely competitive market is not maximizing its profits when
A.the marginal revenue product of every resource is equal to 1
B.the marginal revenue product of every resource is equal to its price
C.the ratio of the marginal revenue product of every resource to its price is equal to 1
D.the ratio of the price of every resource to its marginal revenue product is equal to 1


23.
R-3 27c

Assume that a purely competitive firm uses two resources -- labor (L) and capital (C) -- to produce a product. In which situation would the firm be maximizing profit?

A.A
B.B
C.C
D.D



24. In the marginal productivity theory of income distribution, when all markets are purely competitive, each unit of each resource receives a money payment equal to
A.its marginal product
B.its marginal revenue product
C.the needs of the resource owner
D.the payments received by each of the units of the other resources in the economy


25. A major criticism of the marginal productivity theory of income distribution is that
A.labor markets are often subject to imperfect competition
B.the theory suggests that there eventually will be equality in incomes
C.purely competitive firms are only interested in profit maximization
D.the demand for labor resources are price elastic



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