Question 1

Diminishing marginal product occurs when
A)the marginal product of an input increases as the quantity of the input increases.
B)the marginal product of an input decreases as the quantity of the input increases.
C)total output increases as the quantity of an input increases.
D)total output decreases as the quantity of an input increases.

Accepted Answer

Diminishing marginal product occurs when the marginal product of an input decreases as the quantity of the input increases. This is because as more of a particular input is added, the marginal product of each additional unit of the input declines due to factors such as limited resources and decreasing efficiency.

Question 2

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?
A)$10
B)$20
C)$40
D)There is insufficient information to answer this question.

Accepted Answer

The answer of Diane's Auto World installs tires on automobiles,...

Question 3

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?
A)$10
B)$15
C)$20
D)$30

Accepted Answer

In a competitive market, the profit-maximizing business owner hires workers up to the point where the worker's marginal productivity equals the worker's wage. Since the marginal cost of an oil change is $10 and the marginal productivity of the last worker hired is 1.5 oil changes per hour, Linda is generating $15 of revenue per hour with the last worker hired. Therefore, Linda is willing to pay the worker up to $15 per hour ($15 marginal revenue - $10 marginal cost = $5 maximum hourly wage). The only answer choice that falls within this range is B) $15.

Question 4

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?
A)less than $15 per haircut
B)$15 per haircut
C)more than $15 haircut
D)There is insufficient information to answer this question.

Accepted Answer

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

Question 5

When a firm experiences diminishing marginal product, what is the shape of the curve that represents the value of the marginal product of labor?
A)U-shaped
B)vertical
C)downward sloping
D)upward sloping

Accepted Answer

When a firm experiences diminishing marginal product, the marginal product of labor curve will eventually slope downward, indicating that each additional unit of labor is adding less and less to total production. As a result, the value of the marginal product of labor will eventually decline as well.

Question 6

To maximize profit, a competitive firm hires workers up to the point of intersection of the
A)marginal product curve and the wage line.
B)value of marginal product curve and the wage line.
C)value of marginal product curve and the marginal revenue curve.
D)total revenue curve and the wage line.

Accepted Answer

The point of intersection of the value of marginal product curve (which represents the additional revenue generated by each additional unit of labor) and the wage line (which represents the cost of each additional unit of labor) represents the optimal level of labor to hire in order to maximize profits. At this point, the marginal revenue generated by each additional unit of labor is equal to the cost of that labor, ensuring that the firm is hiring workers efficiently and profitably.

Question 7

Typically, as a firm hires additional workers, the marginal product of labor
A)decreases, and the value of the marginal product of labor decreases.
B)stays constant, and the value of the marginal product of labor decreases.
C)decreases, and the value of the marginal product of labor stays constant.
D)decreases, and the value of the marginal product of labor increases.

Accepted Answer

As a firm hires additional workers, the marginal product of labor generally decreases due to the law of diminishing marginal returns. This means that each additional unit of labor added will result in a smaller increase in output than the previous unit of labor added. As a result, the value of the marginal product of labor (the additional value that each additional unit of labor contributes to production) also decreases.

Question 8

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
A)20 radios.
B)90 radios.
C)$200.
D)$400.

Accepted Answer

The answer of Suppose that eight workers can manufacture 70...

Question 9

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
A)the wage rate must be less than $60 per day.
B)hiring Juanita would involve a negative marginal product.
C)the wage rate must be more than $60 per day.
D)the wage rate must be less than $20 per day.

Accepted Answer

If Juanita can sell 3 extra rings per day for a profit of $20 each, that's an additional revenue of $60 per day. If the owner doesn't hire her, they are missing out on this potential revenue. Therefore, if the cost of hiring Juanita is less than $60 per day, it would be profitable for the owner to hire her. So, the wage rate must be more than $60 per day for the owner to not hire her.

Question 10

The value of the marginal product of any input is equal to the marginal product of that input multiplied by the
A)wage.
B)marginal cost of the output.
C)change in total profit.
D)market price of the output.

Accepted Answer

The value of the marginal product is determined by the market price of the output because it represents the additional revenue earned from producing one more unit of output, and the market price reflects the value consumers place on that output.

Question 11

Diminishing marginal product is closely related to
A)diminishing total cost.
B)diminishing marginal cost.
C)increasing price.
D)increasing marginal cost.

Accepted Answer

The answer of Diminishing marginal product is closely related to
A)diminishing...

Question 12

A profit-maximizing, competitive firm for which the marginal product of labor is diminishing also experiences
A)a perfectly inelastic supply of labor.
B)a perfectly elastic supply of labor.
C)a downward-sloping demand for labor.
D)an upward-sloping demand for labor.

Accepted Answer

A diminishing marginal product of labor means that each additional unit of labor hired will produce less output than the previous unit. This implies that the firm faces a diminishing marginal revenue product of labor. To maximize profits, the firm hires labor up to the point where the marginal cost of labor equals the marginal revenue product of labor. Since the marginal revenue product of labor is declining, the firm's demand for labor must be downward-sloping.

Question 13

Value of marginal product is defined as the additional
A)output a firm would receive after hiring one more factor of production.
B)cost of hiring one more factor of production.
C)revenue earned from selling one more unit of product.
D)revenue earned from hiring one more factor of production.

Accepted Answer

The answer of Value of marginal product is defined as...

Question 14

For a profit-maximizing, competitive firm, the value of the marginal product of labor
A)increases when the price of output decreases.
B)is the firm's demand for labor.
C)equals the marginal product of labor divided by the wage rate.
D)All of the above are correct.

Accepted Answer

The answer of For a profit-maximizing, competitive firm, the value...

Question 15

If a firm experiences diminishing marginal productivity of labor, the marginal product
A)increases as total product increases.
B)decreases as total product increases.
C)increases as total product decreases.
D)decreases as total product decreases.

Accepted Answer

Diminishing marginal productivity of labor means that as more labor is added, the increase in total output decreases. Therefore, the marginal product decreases as total product increases.

Question 16

Which of the following statements is correct?
A)The value of the marginal product curve is the labor demand curve for competitive, profit-maximizing firms.
B)A competitive, profit-maximizing firm hires workers up to the point where the value of the marginal product of labor equals the wage.
C)By hiring labor up to the point where the value of the marginal product of labor equals the wage, the firm is producing where price equals marginal cost.
D)All of the above are correct.

Accepted Answer

Option A is correct because the labor demand curve for a competitive and profit-maximizing firm is the marginal product curve. The firm will keep on hiring labor till the point it's marginal productivity is equal to the wage rate. Option B is correct because a profit-maximizing firm hires workers up to the point where the value of the marginal product of labor equals the wage. Option C is also right because when the firm is producing where the marginal product of labor equals the wage, then the firm is also producing where price equals marginal cost. Thus, all the given options are correct.

Question 17

When deciding whether to hire an additional worker, firms need only consider how the additional worker would affect
A)costs.
B)revenues.
C)output.
D)profit.

Accepted Answer

Firms ultimately aim to maximize their profits, so the most important factor to consider when making a hiring decision is how the additional worker will impact profits. While hiring a new worker may increase output and revenue in the short term, it may also carry additional costs such as wages and benefits, which could ultimately reduce profit. Therefore, firms must carefully consider the potential impact of an additional worker on profits before making a decision.

Question 18

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?
A)$200
B)$8
C)$5
D)There is insufficient information available to answer this question.

Accepted Answer

The answer of Tony is the owner of Tony's Taqueria....

Question 19

The value of the marginal product of labor is equal to the change in
A)marginal cost caused by the addition of the last worker.
B)total cost caused by the addition of the last worker.
C)total revenue caused by the addition of the last worker.
D)total profit caused by the addition of the last worker.

Accepted Answer

The answer of The value of the marginal product of...

Question 20

Diminishing marginal product occurs when
A)the increases to total output are declining.
B)marginal product is negative.
C)total output is decreasing.
D)All of the above are correct.

Accepted Answer

Diminishing marginal product occurs when the increases to total output are declining, meaning that as more units of a variable input are added to a fixed input, the marginal product of the variable input will eventually start to decrease. This does not necessarily mean that total output will decrease or that marginal product will be negative.

Quiz 18: The Markets for the Factors of Production

Diminishing marginal product occurs when

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?

When a firm experiences diminishing marginal product, what is the shape of the curve that represents the value of the marginal product of labor?

To maximize profit, a competitive firm hires workers up to the point of intersection of the

Typically, as a firm hires additional workers, 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

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

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

Diminishing marginal product is closely related to

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

Value of marginal product is defined as the additional

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

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

Which of the following statements is correct?

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

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?

The value of the marginal product of labor is equal to the change in

Diminishing marginal product occurs when