Question 1

When economists say that the demand for labor is a derived demand, they mean that it is

Accepted Answer

The demand for labor is considered a derived demand because it is directly related to the demand for the products or services that the labor is used to produce. If there is high demand for a product, businesses will need more labor to increase production, hence increasing the demand for labor.

Question 2

Marginal product is

Accepted Answer

Marginal product refers to the additional output generated by employing one more unit of a factor of production, such as a worker, which is why option C is correct. It does not directly relate to the skill level of a worker, the multiplication of output by price, or the contribution to total revenue, which are described in the other options.

Question 3

Harry owns a barbershop and charges $6 per haircut. By hiring one barber at $10 per hour, the shop can provide 24 haircuts per eight-hour day. By hiring a second barber at the same wage rate, the shop can now provide a total of 42 haircuts per day. The MP of the second barber is

Accepted Answer

The Marginal Product (MP) of the second barber is the additional number of haircuts provided by hiring the second barber, which is the difference between the total haircuts with two barbers (42) and the total haircuts with one barber (24), resulting in 18 additional haircuts.

Question 4

The marginal revenue product schedule is

Accepted Answer

The marginal revenue product (MRP) schedule represents the additional revenue a firm earns from employing one more unit of a resource, making it the firm's resource demand schedule. It is based on the principle that firms will continue to hire additional resources as long as the cost of hiring the resource (the wage rate, for example) is less than or equal to the additional revenue generated by that resource.

Question 5

We say that the demand for labor is a derived demand because

Accepted Answer

The demand for labor is considered a derived demand because it is dependent on the demand for the products or services that the labor helps to produce. Employers hire labor based on the demand for their products, not for the labor itself.

Question 6

A profit-maximizing firm employs resources to the point where

Accepted Answer

The correct answer is C) MRP = MRC, which stands for Marginal Revenue Product equals Marginal Resource Cost. This principle is used by profit-maximizing firms to determine the optimal level of resource employment, ensuring that the cost of the last unit of resource employed is equal to the revenue generated by that unit.

Question 7

The demand for airline pilots results from the demand for air travel. This fact is an example of

Accepted Answer

The demand for airline pilots is a direct result of the demand for air travel, illustrating the concept of derived demand for labor, where the demand for workers is based on the demand for the goods or services they produce.

Question 8

Assume labor is the only variable input and that an additional input of labor increases total output from 72 to 80 units. If the product sells for $6 per unit in a purely competitive market, the MRP of this additional worker is

Accepted Answer

The Marginal Revenue Product (MRP) is calculated by multiplying the marginal product of labor (the additional output produced by the additional worker, which is 80 - 72 = 8 units) by the price of the product ($6). Therefore, MRP = 8 units * $6/unit = $48.

Question 9

The labor demand curve of a purely competitive seller

Accepted Answer

The labor demand curve for a purely competitive seller slopes downward primarily due to the law of diminishing marginal productivity. This principle states that as more units of a variable input (like labor) are added to fixed amounts of other inputs, the additional output produced by each new unit of input eventually decreases.

Question 10

An employer hiring in a competitive labor market should hire additional labor as long as

Accepted Answer

The employer should continue to hire additional labor as long as the marginal revenue product (MRP) of labor exceeds the wage rate. This is because the firm is increasing its profit by hiring additional labor up to the point where the cost of hiring one more unit of labor (wage rate) equals the additional revenue generated by that unit of labor (MRP).

Question 11

If one worker can pick $30 worth of grapes and two workers together can pick $50 worth of grapes, the

Accepted Answer

The marginal revenue product of the second worker is the additional revenue generated by hiring the second worker, which is $50 - $30 = $20.

Question 12

Which of the following statements best illustrates the concept of derived demand?

Accepted Answer

Derived demand refers to the demand for a good or factor of production resulting from the demand for another good or service. In this case, the demand for leather is derived from the demand for shoes. If the demand for shoes declines, it logically follows that the demand for leather, which is used to make shoes, will also decline.

Question 13

The demand for a resource depends primarily on

Accepted Answer

The demand for a resource is primarily driven by the demand for the products or services that the resource helps to produce. If there is high demand for a product, the demand for the resources needed to produce that product will also be high.

Question 14

Harry owns a barbershop and charges $6 per haircut. By hiring one barber at $10 per hour, the shop can provide 24 haircuts per eight-hour day. By hiring a second barber at the same wage rate, the shop can now provide a total of 42 haircuts per day. The MRP of the second barber is

Accepted Answer

The MRP (Marginal Revenue Product) of the second barber is calculated by the additional revenue generated by hiring the second barber. With one barber, the shop can provide 24 haircuts, and with two barbers, it can provide 42 haircuts, an increase of 18 haircuts. Since each haircut is charged at $6, the MRP of the second barber is 18 haircuts * $6 = $108.

Question 15

Marginal revenue product measures the

Accepted Answer

Marginal revenue product specifically refers to the increase in total revenue a firm experiences as a result of adding one more unit of a resource, such as a worker. This concept is used to determine the additional revenue generated from hiring an additional worker, assuming all other factors remain constant.

Question 16

Holding revenues constant, cost minimization by firms is equivalent to

Accepted Answer

Cost minimization, when revenues are constant, directly contributes to profit maximization because profits are the difference between revenues and costs. Reducing costs while maintaining the same level of revenues increases profits.

Question 17

The purely competitive employer of resource A will maximize the profits from A by equating the

Accepted Answer

The purely competitive employer will maximize profits from a resource (A in this case) by equating the price of A with its Marginal Revenue Product (MRP). This is because, in a competitive market, the price of the resource reflects the value of the marginal product, and profit maximization occurs when the cost of the resource (its price) equals the additional revenue generated by employing one more unit of the resource (MRP).

Question 18

A firm will find it profitable to hire workers up to the point at which their

Accepted Answer

The firm will find it profitable to hire workers up to the point where the cost of hiring an additional worker (marginal resource cost, MRC) equals the additional revenue generated by that worker (marginal revenue product, MRP). This ensures that the firm is maximizing its profit by equating the cost of additional resources to the revenue those resources generate.

Question 19

In the United States, professional football players earn much higher incomes than professional soccer players. This occurs because

Accepted Answer

The primary reason professional football players in the United States earn higher incomes than professional soccer players is due to the greater demand for football games among U.S. consumers. This higher demand translates into more revenue for football leagues, which in turn can afford to pay their players higher salaries.

Question 20

The MRP curve for labor

Accepted Answer

The MRP (Marginal Revenue Product) curve for labor represents the additional revenue a firm earns from hiring one more unit of labor, and it is equivalent to the firm's demand curve for labor. This is because firms decide on the quantity of labor to hire based on the additional revenue generated by that labor.

Quiz 16: The Demand for Resources