Question 1

The labor supply curve facing all industries in the economy is most likely to be:

Accepted Answer

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Question 2

Suppose several industries compete for the available supply of a particular input.In a multi-industry market like this,which of the following statements about the input supply curve facing a single industry will be true?

Accepted Answer

The elasticity of an industry's input supply curve is influenced by the share of the total input it employs. A smaller share implies the industry has more alternatives and can more easily adjust to price changes, making its input supply curve more elastic.

Question 3

Which of the following is true for a firm that is an input market monopsony?

Accepted Answer

In a monopsony, the firm has significant control over the market for an input, such as labor. As it increases the quantity of the input it buys, it must offer a higher price to attract additional units. This means the marginal cost (the cost of acquiring one more unit of the input) is higher than the average cost (the total cost divided by the number of units purchased), which is characteristic of monopsonistic markets.

Question 4

For a perfectly competitive firm,the marginal revenue product of an input will be:

Accepted Answer

The marginal revenue product of an input is the additional revenue a firm earns by employing one more unit of that input, which is calculated as the product of the marginal product of the input and the price of the output (marginal value product), not the input price or marginal cost. This concept assumes perfect competition, where firms are price takers, making the marginal revenue product equal to the marginal value product.

Question 5

Which of the following is true of a profit-maximizing output market monopolist?

Accepted Answer

A monopolist equates the wage rate with the marginal revenue product to maximize profits, not the supply curve or input prices as suggested by the other options.

Question 6

Suppose that computer programmers work in two industries,X and Y.Both industries are in equilibrium and have identical labor supply and demand curves.Given that other things are unchanged,if the demand for programmers in industry X increases,then:

Accepted Answer

When the demand for programmers in industry X increases, the firms in that industry will have to pay higher wages to attract and retain workers. This will lead to an increase in the wages for programmers in both industries. However, since the labor supply and demand curves are identical in both industries, the increase in wages will only attract more workers to industry X, resulting in an increase in employment in that industry and a decrease in employment in industry Y. Therefore, option B is the correct option.

Question 7

When the input supply curve confronting an individual firm is the same as the market supply of the input,one can conclude that:

Accepted Answer

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Question 8

When other inputs are held fixed,the output market monopolist's demand curve for an input:

Accepted Answer

The monopolist's demand curve for an input is derived by multiplying the marginal product of the input by the marginal revenue, reflecting the additional revenue generated by employing one more unit of the input.

Question 9

Which of the following is true of an input that is hired by firms in several industries in the long run?

Accepted Answer

In the long run, the input market is more competitive, and firms have more flexibility to switch to substitute inputs or change their production methods to reduce their demand for the input. These factors contribute to a more uniform price for the input across industries. Therefore, the price of the input will remain the same across all the industries.

Question 10

The input demand curve for an output market monopolist slopes downward because:

Accepted Answer

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Question 11

The input supply curve facing a competitive firm is most likely to:

Accepted Answer

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Question 12

In order to maximize profits,an output market monopoly will:

Accepted Answer

A monopoly in the output market will seek to maximize profits by paying a wage that is less than the marginal value product of labor. This allows the firm to capture more of the value generated by the labor, increasing its profits.

Question 13

Given that other inputs are kept fixed,the input demand curve for an output market monopolist is equal to the:

Accepted Answer

The input demand curve for a monopoly firm in the output market is equal to the marginal revenue product (MRP) curve. This is because a monopolist aims to maximize its profit, which is achieved by equating the marginal revenue product of an input (i.e. the additional revenue generated by employing one more unit of the input) with its marginal cost. Therefore, the input demand curve shows the quantity of an input that a monopolist is willing to hire at different input prices, and it is equal to the MRP curve. Consequently, options A, C, and D are incorrect choices.

Question 14

Which of the following is true for a firm that has a monopoly in the output market?

Accepted Answer

Monopolists restrict output to raise prices, which generally leads to lower employment of inputs compared to a perfectly competitive market where firms produce where price equals marginal cost, leading to higher output and input employment.

Question 15

The monopsonist's marginal input cost is greater than its average input cost because:

Accepted Answer

As a monopsonist, the firm is the sole buyer of a particular input, such as labor. Therefore, if it wants to hire additional workers, it must offer a higher price to attract them away from other potential occupations or employers. This means that the marginal input cost, which is the additional cost of hiring an additional unit of input, will be higher than the average input cost, which is the total cost of all the inputs divided by the quantity of inputs employed. In other words, the firm must pay a higher price for each new worker it hires, which raises its marginal input cost above the average input cost.

Question 16

Which of the following correctly describes a monopsony?

Accepted Answer

A monopsony is a market structure in which there is only one buyer of a particular product or service. Therefore, a monopsony firm is the sole buyer in an input market. Choice A describes a monopoly, choice B describes a duopoly, and choice D describes a cartel.

Question 17

The supply curve of labor to a competitive firm is:

Accepted Answer

The supply curve of labor to a competitive firm is horizontal because the firm can indeed hire as many workers as it wants at the market wage, reflecting the firm's status as a "price taker" in the labor market.

Question 18

Which of the following is true of the marginal value product curve (MVP)and the marginal revenue product curve (MRP)for an output market monopolist?

Accepted Answer

For a monopolist in the output market, the marginal revenue product (MRP) curve lies below the marginal value product (MVP) curve because the monopolist faces a downward-sloping demand curve for the output, which means that the marginal revenue (MR) earned from selling an additional unit of output is less than the price of that unit. Therefore, the monopolist must lower the price of output to sell more, which means that the value of the marginal product of labor (MPL) diminishes at higher levels of employment. This implies that the MVP curve slopes downward. Since the MRP is the product of MPL and MR, it also slopes downward but lies below the MVP curve. The intersection of the MRP and the labor supply curve determines the equilibrium level of employment and wage rate for the firm, which may be lower or higher than the competitive level depending on the degree of market power the firm has.

Question 19

An output market monopoly:

Accepted Answer

An output market monopoly has the ability to control the price of its product because there are no close substitutes available in the market. This leads to a downward sloping demand curve for its product. As a result, the monopoly will produce a lower output quantity at a higher price than would be produced under competition. This lower output quantity will require fewer workers than would be required under competition, resulting in a lower employment level. Therefore, option B is correct as it states that an output market monopoly employs fewer workers than would be employed under competition.

Question 20

For a monopsony buyer of labor,the marginal cost of hiring one more worker is:

Accepted Answer

In a monopsony, where there is only one buyer (employer) in the labor market, the marginal cost of hiring an additional worker is greater than the wage rate. This is because the monopsonist must increase the wage rate for all workers to attract one more worker, thus increasing the total cost more than the wage of the additional worker.

Quiz 16: Employment and Pricing of Inputs