MOCK EXAM
"LABOR MARKET IN PERFECTLY COMPETITIVE INPUT MARKET"




1. A profit-maximizing firm employs resources to the point where:
A.MRC = MP.
B.Resource price equals product price.
C.MRP = MRC.
D.MP = product price.


2.
Answer the next question(s) on the basis of the following information for Manfred's Shoe Shine Parlor. Assume Manfred hires labor, its only variable input, under purely competitive conditions. Shoe shines are also sold competitively.

R-1 REF27026

Refer to the above data. At what price does each shoe shine sell?
A.$1
B.$2
C.$3
D.$2.50



3.
Answer the next question(s) on the basis of the following information for Manfred's Shoe Shine Parlor. Assume Manfred hires labor, its only variable input, under purely competitive conditions. Shoe shines are also sold competitively.

R-1 REF27026

Refer to the above data. What is the marginal product of the sixth worker?
A.2 units
B.3 units
C.4 units
D.5 units



4. The output effect occurs:
A.only when wage elasticity of demand is greater than 1.
B.because a change in the price of a resource will alter costs and therefore the equilibrium output.
C.only when the inputs being employed are substitutes.
D.only when the inputs being employed are complementary.


5. Assuming a firm is selling its output in a purely competitive market, its resource demand curve can be determined by:
A.multiplying total product by product price.
B.multiplying marginal product by product price.
C.dividing total revenue by marginal product.
D.comparing marginal product with various possible input prices.


6. Assume the price of capital doubles and, as a result, firms make no change in the relative quantities of capital and labor they employ. This implies that:
A.labor is not readily substitutable for capital.
B.the law of diminishing returns is not applicable.
C.the firms are producing an inferior good.
D.the demand for capital is highly price elastic.


7.
Answer the next question(s) on the basis of the following data:

R-2 REF27126

Refer to the above data. The firm's total output will be:
A.38 units.
B.60 units.
C.64 units.
D.27 units.



8.


R-3 F27136

Refer to the above diagram. The production of Q1 units of output at an average cost of a:
A.is not possible, given present technology and resource prices.
B.can be achieved if the firm would hire the optimal mix of resources.
C.would entail X-inefficiency.
D.can be realized if the last dollar spent on each input were equal to its marginal product.



9. The labor demand curve of a purely competitive seller:
A.slopes downward because the elasticity of demand is always less than unity.
B.slopes downward because of diminishing marginal productivity.
C.is perfectly elastic at the going wage rate.
D.slopes downward because of diminishing marginal utility.


10. The change in a firm's total revenue that results from the hire of an additional worker is measured by:
A.marginal product.
B.marginal revenue.
C.marginal revenue product.
D.average revenue product.


11. Suppose a technological improvement increases the productivity of a firm's capital and, simultaneously, its workers' union negotiates a wage increase. We can predict that:
A.the firm will use relatively more capital and relatively less labor.
B.the firm will use relatively more labor and relatively less capital.
C.inputs of capital and labor will be unchanged.
D.the firm's equilibrium output will necessarily increase.


12. The substitution effect indicates that a profit-seeking firm will use:
A.more of an input whose price has fallen and less of other inputs in producing a given output.
B.more of all inputs if production costs fall.
C.more of those inputs whose marginal productivity is the greatest.
D.less of an input whose price has fallen and more of other inputs in producing a given output.


13. The purely competitive employer of resource A will maximize the profits from A by equating the:
A.price of A with the MRP of A.
B.marginal productivity of A with the MRC of A.
C.marginal productivity of A with the price of A.
D.price of A with the MRC of A.


14. The demand for a resource depends on its productivity and the market value of the product it is producing.
A.True
B.False


15. The fact that monopoly and monopsony exist in resource markets means that:
A.the marginal productivity theory of income distribution is valid.
B.resource prices need not accurately measure contributions to output.
C.the resulting income distribution is ethically correct.
D.income shares do not exhaust the total output.


16. Employers will hire more units of a resource if:
A.the price of the resource increases.
B.the productivity of the resource increases.
C.the price of the good being produced declines.
D.the price of a complementary resource rises.


17. The general rule for hiring any input (say, labor) in the profit-maximizing amount is MRC = MRP. This rule takes the special form W = MRP (where W is the wage rate) when the:
A.labor supply curve is upsloping.
B.supply of labor is inelastic.
C.firm is hiring labor under purely competitive conditions.
D.firm is hiring labor under imperfectly competitive conditions.


18. If a 10 percent wage increase in a particular labor market results in a 5 percent decline in employment in that market, labor demand is:
A.unit elastic.
B.elastic.
C.inelastic.
D.perfectly elastic.


19. Suppose the price of the product that labor is producing increases and simultaneously the price of capital, which is substitutable for labor, decreases. Assuming that the substitution effect is greater than the output effect, the demand for labor:
A.will increase.
B.will decrease.
C.may either increase or decrease.
D.will not change.


20. The marginal productivity theory of income distribution suggests that :
A.government should subsidize the most productive workers through a system of transfer payments.
B.each individual should receive income based on his contribution to total output.
C.resource owners should receive income based on the idea of "from each according to his ability, to each according to his wants."
D.resource owners should receive income based upon their needs.



This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to grade the test.