Question 1

Tony is the owner of Tony's Taqueria. Tony is a profit-maximizing owner whose firm operates in a competitive market. An additional worker costs Tony $200 and has a marginal productivity of 40 tacos. Assuming no other variable costs, what is the marginal cost of a taco?

Accepted Answer

The marginal cost of a taco is calculated by dividing the cost of the additional worker ($200) by the marginal productivity (40 tacos), which equals $5 per taco.

Question 2

Sally runs a hair styling salon. Sally is a profit-maximizing owner whose firm operates in a competitive market. The marginal cost of a haircut is $15. What is the maximum wage that Sally will pay her stylists?

Accepted Answer

The answer of Sally runs a hair styling salon. Sally...

Question 3

The value of the marginal product of any input is equal to the marginal product of that input multiplied by the

Accepted Answer

The value of the marginal product of any input is equal to the marginal product of that input multiplied by the market price of the output. This is because the marginal product measures the additional output produced by an additional unit of input, and the market price represents the revenue earned from each unit of output. Therefore, multiplying the marginal product by the market price gives us the value of the marginal product, which represents the additional revenue earned by using one more unit of input.

Question 4

Juanita is trying to convince the owner of a jewelry store to hire her. She argues that she could help the shop sell an additional three rings per day for a profit of $20 each. If the facts are not in dispute, but the owner does not hire her, then

Accepted Answer

If Juanita can sell three additional rings per day for a profit of $20 each, that would generate an additional profit of $60 per day. Therefore, if the wage rate is more than $60 per day, it would not be profitable for the owner to hire her.

Question 5

When a production function exhibits a diminishing, but positive, marginal product of labor,

Accepted Answer

When a production function exhibits a diminishing marginal product of labor, it means that output increases at a decreasing rate as more workers are employed. This implies that the first few workers hired will be more productive than the additional workers as the productivity of each worker decreases with an increase in the number of workers. However, output still increases for each additional worker, but at a slower rate.

Question 6

When deciding whether to hire an additional worker, firms need only consider how the additional worker would affect

Accepted Answer

When deciding whether to hire an additional worker, firms should consider how the additional worker would affect profit. The decision to hire an additional worker should only be made if the additional worker would contribute to increasing profits. Therefore, firms should consider not only the additional wage cost but also the additional revenue generated by the worker's extra contribution to production. If the additional revenue exceeds the additional cost, then hiring the worker is profitable.

Question 7

Linda's Autoplex performs oil changes on automobiles, light trucks, and sport utility vehicles. She is a profit-maximizing business owner whose firm operates in a competitive market. The marginal cost of an oil change is $10. The marginal productivity of the last worker that Linda hired was 1.5 oil changes per hour. What is the maximum hourly wage that Linda was willing to pay the last worker hired?

Accepted Answer

In a competitive market, a profit-maximizing firm will hire workers up to the point where the marginal revenue product of labor (MRPL) is equal to the wage rate. In this case, the marginal revenue product is equal to the marginal productivity of the last worker hired multiplied by the price of an oil change. Since the price of an oil change is not given, we cannot calculate the exact MRPL. However, we can use the marginal cost of an oil change as an approximation of its price. Therefore, the MRPL of the last worker hired is 1.5 oil changes per hour * $10 = $15/hour. This means that Linda would be willing to pay the last worker up to $15 per hour, which is the maximum hourly wage that she would pay. Therefore, the answer is B.

Question 8

Diminishing marginal product is closely related to

Accepted Answer

Diminishing marginal product occurs when adding an additional factor of production results in a smaller increase in output. This typically leads to increasing marginal cost because each additional unit of output becomes more expensive to produce as productivity decreases.

Question 9

For a profit-maximizing, competitive firm, the value of the marginal product of labor

Accepted Answer

The value of the marginal product of labor is the additional revenue generated by employing one more unit of labor. For a competitive firm, this value determines the firm's demand for labor, as it will hire workers up to the point where this value equals the wage rate.

Question 10

Suppose that eight workers can manufacture 70 radios per day and that nine workers can manufacture 90 radios per day. If radios can be sold for $20 each, the value of marginal product of the ninth worker is

Accepted Answer

The marginal product of the ninth worker is the additional radios produced by the ninth worker, which is 90 - 70 = 20 radios. The value of the marginal product is 20 radios * $20 = $400.

Question 11

Typically, as a firm hires additional workers, the marginal product of labor

Accepted Answer

As more workers are hired, the law of diminishing marginal returns sets in, causing the marginal product of labor to decrease. This means that each additional worker added to the production process increases output by a smaller and smaller amount. Additionally, as the marginal product of labor decreases, the value of the marginal product of labor also decreases. This is because the firm must pay all workers the same wage rate, regardless of their individual productivity, so the decreasing marginal product of each additional worker means that the incremental revenue generated by that worker is also decreasing.

Question 12

Diminishing marginal product occurs when

Accepted Answer

Diminishing marginal product occurs when the marginal product of an input decreases as the quantity of the input increases. This happens because as more and more of an input is used, the efficiency of each unit of the input decreases, resulting in a smaller increase in output with each additional unit of input.

Question 13

If hiring more workers results in each additional worker contributing successively smaller amounts of output, then which of the following is present?

Accepted Answer

This situation is known as diminishing marginal product, which means that each additional worker added to the production process contributes less and less to output. This can result in a decrease in total product (choice B) and potentially lower profitability (choice A), but the specific impact on profitability would depend on the cost of hiring additional workers.

Question 14

A profit-maximizing, competitive firm for which the marginal product of labor is diminishing also experiences

Accepted Answer

When the marginal product of labor is diminishing, the firm will hire fewer workers as the cost of employing an additional worker will increase. This means that the demand for labor will be downward-sloping, as the firm is willing to pay a higher wage for the first few workers, but will become less willing to pay higher wages for additional workers as their marginal product decreases.

Question 15

Which of the following statements is correct?

Accepted Answer

All of the statements are correct. A competitive, profit-maximizing firm hires workers up to the point where the value of the marginal product of labor equals the wage, which is the labor demand curve. By producing where price equals marginal cost, the firm maximizes its profits, which is the goal of profit-maximizing firms.

Question 16

Diane's Auto World installs tires on automobiles, light trucks, and sport utility vehicles. She is a profit-maximizing business owner whose firm operates in a competitive market. The marginal cost of installing a tire is $20. The marginal productivity of the last worker that Diane hired was 2 tires per hour. What is the maximum hourly wage that Diane was willing to pay the last worker hired?

Accepted Answer

The maximum hourly wage Diane is willing to pay is equal to the value of the marginal product of labor. The marginal productivity of the last worker is 2 tires per hour, and the marginal cost of installing a tire is $20. Therefore, the value of the marginal product is 2 tires/hour * $20/tire = $40/hour.

Question 17

If a firm experiences diminishing marginal productivity of labor, the marginal product

Accepted Answer

Diminishing marginal productivity of labor means that as more units of labor are added, the marginal product of each additional unit of labor decreases. Therefore, the marginal product decreases as total product increases.

Question 18

Value of marginal product is defined as the additional

Accepted Answer

The value of marginal product is the additional revenue a firm earns from hiring one more unit of a factor of production, calculated as the marginal product of the factor multiplied by the price of the output.

Question 19

Diminishing marginal product affects the shape of the production function in what way?

Accepted Answer

Diminishing marginal product implies that as more units of an input are added to production, the additional output produced from each new unit of input decreases. This results in the slope of the production function decreasing as the quantity of input increases, reflecting a flattening curve rather than a steepening or linear one.

Question 20

Diminishing marginal product occurs when

Accepted Answer

Diminishing marginal product occurs when the increases to total output are declining, which means that the additional output gained from using an additional unit of input is becoming smaller and smaller. This happens as a result of fixed inputs becoming more scarce relative to the variable inputs being used. It is important to note that although marginal product may decrease, total output may still be increasing.

Quiz 18: The Markets for the Factors of Production

Tony is the owner of Tony's Taqueria. Tony is a profit-maximizing owner whose firm operates in a competitive market. An additional worker costs Tony $200 and has a marginal productivity of 40 tacos. Assuming no other variable costs, what is the marginal cost of a taco?

Sally runs a hair styling salon. Sally is a profit-maximizing owner whose firm operates in a competitive market. The marginal cost of a haircut is $15. What is the maximum wage that Sally will pay her stylists?

The value of the marginal product of any input is equal to the marginal product of that input multiplied by the

Juanita is trying to convince the owner of a jewelry store to hire her. She argues that she could help the shop sell an additional three rings per day for a profit of $20 each. If the facts are not in dispute, but the owner does not hire her, then

When a production function exhibits a diminishing, but positive, marginal product of labor,

When deciding whether to hire an additional worker, firms need only consider how the additional worker would affect

Diminishing marginal product is closely related to

For a profit-maximizing, competitive firm, the value of the marginal product of labor

Suppose that eight workers can manufacture 70 radios per day and that nine workers can manufacture 90 radios per day. If radios can be sold for $20 each, the value of marginal product of the ninth worker is

Typically, as a firm hires additional workers, the marginal product of labor

Diminishing marginal product occurs when

If hiring more workers results in each additional worker contributing successively smaller amounts of output, then which of the following is present?

A profit-maximizing, competitive firm for which the marginal product of labor is diminishing also experiences

Which of the following statements is correct?

If a firm experiences diminishing marginal productivity of labor, the marginal product

Value of marginal product is defined as the additional

Diminishing marginal product affects the shape of the production function in what way?

Diminishing marginal product occurs when