Question 1

The demand curve for capital is

Accepted Answer

The demand for capital is derived from its marginal revenue product (MRP) curve, which shows the additional revenue generated by each additional unit of capital. However, as the amount of capital increases, the marginal revenue product diminishes, just like with any other factor of production. Therefore, the demand curve for capital is the downward-sloping portion of its MRP curve. Choice A is incorrect because the entire marginal physical product curve shows the additional physical output generated by each additional unit of capital, but it does not directly determine the demand for capital. Choice B is incorrect because it only represents the marginal physical product, not the revenue generated, and therefore does not provide a complete picture of the demand for capital. Choice C is incorrect because the entire MRP curve includes both the upward and downward sloping portions, but only the downward portion represents the demand curve for capital.

Question 2

Which factor of production receives the greatest share of the U.S.national income?

Accepted Answer

According to the latest data from the Bureau of Economic Analysis, labor (or compensation of employees) receives the largest share (about 56%) of the U.S. national income, followed by capital (about 26%) and entrepreneurship (about 18%). Land rent is a relatively small component of the national income.

Question 3

The theory of factor pricing uses supply-demand analysis.

Accepted Answer

The theory of factor pricing is based on the supply and demand of factors of production, such as labor, land, and capital. Therefore, it uses supply-demand analysis to determine the prices of these factors.

Question 4

The marginal productivity principle says that a profit-maximizing firm should

Accepted Answer

The marginal productivity principle suggests that a firm should continue to hire labor until the cost of hiring an additional worker is equal to the revenue generated by that worker. This is because, at this point, hiring more workers would not increase profits. Choices A, C, and D do not accurately reflect this principle.

Question 5

If factor markets are competitive, a profit maximizing firm should buy inputs where MRP is

Accepted Answer

A profit maximizing firm should buy inputs where MRP is equal to the input price. This is because at this point, the marginal cost of the input is equal to the marginal revenue product, ensuring that the firm is maximizing its profits. If the MRP were inelastic, the firm could potentially increase profits by buying more of the input, and if the MRP were elastic, the cost of the input would exceed the revenue generated from using it.

Question 6

The marginal productivity theory is irrelevant to organizing production in a socialist society.

Accepted Answer

The answer of The marginal productivity theory is irrelevant to...

Question 7

Interest payments account for about ___ percent of U.S.national income.

Accepted Answer

Interest payments account for about 3 percent of U.S. national income. This reflects the cost of borrowing for both the government and private sector, relative to the overall economic activity of the country.

Question 8

According to the principle of marginal productivity, if

Accepted Answer

According to the principle of marginal productivity, a firm should continue to use an input as long as the MRP of the input is greater than or equal to the price of the input. Therefore, if the price of the input equals MRP, the firm is maximizing profit.

Question 9

If a ton of steel sells for $15,000 and a car made from a ton of steel sells for $30,000, then if all markets are perfectly competitive, how many cars can be made from the last ton of steel used by a profit-maximizing firm?

Accepted Answer

If a ton of steel sells for $15,000 and a car made from a ton of steel sells for $30,000, then the marginal cost of steel per car is $15,000. A profit-maximizing firm will produce where marginal cost equals marginal revenue. Therefore, the firm will produce one car from every two tons of steel, or 1/2 car from the last ton of steel.

Question 10

In the U.S.economy, labor receives

Accepted Answer

Labor receives the highest share of income in the U.S. economy, typically accounting for around two-thirds of the total income generated.

Question 11

What involves taking the risks that are necessary to seek out business opportunities?

Accepted Answer

Entrepreneurship involves taking calculated risks to seek out business opportunities.

Question 12

The marginal productivity theory of distribution holds that

Accepted Answer

The marginal productivity theory of distribution states that each factor of production (such as labor or capital) is paid according to the amount it contributes to the overall output or earnings of the business. This means that factors that are more productive will earn higher wages or returns, while factors that are less productive will earn less. Therefore, choice B - the owner of each factor is paid the amount that the factor contributes to earnings - is the correct answer.

Question 13

Factor demand is based on

Accepted Answer

Factor demand is based on the marginal productivity theory, which states that firms will hire additional units of a factor of production as long as the marginal revenue product of that factor is greater than or equal to its marginal cost. This theory explains how firms determine their demand for labor, capital, and other factors of production. The law of supply, game theory, and the principle of economies of scale are not directly related to factor demand.

Question 14

Marginal productivity analysis shows that a drop in the price of the product will cause input use to

Accepted Answer

According to the law of diminishing marginal productivity, as the price of the product drops, the marginal productivity of input decreases, which means that using more inputs will lead to a lower output. Therefore, input use will decrease.

Question 15

Land rents account for nearly

Accepted Answer

Land rents account for a relatively small portion of U.S. income, approximately 5 percent, reflecting the diversified nature of the economy where income is generated from various sources beyond just land rents.

Question 16

The marginal productivity principle implies that

Accepted Answer

The marginal productivity principle implies that for maximizing profit, the marginal revenue product (MRP) of an input should be equal to its price. At equilibrium, this means the profit from the last unit of input (marginal profit) will be zero, because the cost of the input equals the revenue it generates.

Question 17

The distribution of income in a market economy is determined by

Accepted Answer

The distribution of income in a market economy is determined by the level of employment and prices of the factors of production.

Question 18

Which of the following is not true about marginal revenue product?

Accepted Answer

Marginal revenue product shows the additional revenue generated from hiring an additional unit of input, not the marginal cost of that input.

Question 19

A worker can always build a chair in four hours.If a chair sells for $40 in a perfectly competitive market, then the equilibrium wage per hour in a perfectly competitive labor market is

Accepted Answer

In a perfectly competitive labor market, the wage rate is equal to the marginal product of labor (MPL). Here, the MPL is the additional output produced by one extra hour of labor, which is equal to the inverse of the time needed to produce a chair. So, MPL = 1/4 chairs per hour. 
Since the equilibrium wage is equal to MPL times the price of a chair, we have: 
Equilibrium wage = MPL * Price = (1/4)*$40 = $10. 
Therefore, the correct answer is (B).

Question 20

One major fault with factor pricing analysis is that marginal productivity theory merely attempts to justify the income distribution that the capitalist system yields.

Accepted Answer

The answer of One major fault with factor pricing analysis...

Quiz 18: Pricing the Factors of Production