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UNIT 4 PRACTICE EXAM
1. The prices paid for resources affect
A. the money incomes of households in the economy
B. the allocation of resources among different firms
and industries in the economy
C. the quantities of different resources employed to
produce a particular product
D. all of the above
2. The demand for a resource is derived from the
A. marginal productivity of the resource and price of
the good or service produced from it
B. marginal productivity of the resource and the
price of the resource
C. price of the resource and the price of the good or
service produced from it
D. price of the resource and the quantity of the
resource demanded
3. The law of diminishing returns explains why
A. the MRP of an input in a purely competitive
market decreases as a firm increases the quantity of
an employed resource
B. the MRC of an input in a purely competitive
market decreases as a firm increases the quantity of
an employed resource
C. resource demand is a derived demand
D. there are substitution and output effects for
resources
Use the following table for a purely competitive
market to answer questions 4-7.
4. At a wage rate of $15, the firm will choose to
employ
A. 2 workers
B. 3 workers
C. 4 workers
D. 5 workers
5. At a wage rate of $30, the firm will choose to
employ
A. 2 workers
B. 3 workers
C. 4 workers
D. 5 workers
6. If the product price increases to a constant $8,
then at a wage rate of $30 the firm will choose to
employ
A. 2 workers
B. 3 workers
C. 4 workers
D. 5 workers
Use the graph below to answer questions 7-10.
Assume that the quantities of other resources the
firm employs remain constant.
7. If the product the firm produces sells for a
constant $3 per unit, the marginal revenue product of
the 4th unit of the resource is
A. $3
B. $6
C. $9
D. $12
8. If the firm's product sells for a constant $3 per
unit and the price of the resource is a constant $15,
the firm will employ how many units of the
resource?
A. 2
B. 3
C. 4
D. 5
9. If the firm can sell 14 units of output at a price of
$1 per unit and 18 units of output at a price of $0.90
per unit, the marginal revenue product of the 3rd unit
of the resource is
A. $4
B. $3.60
C. $2.20
D. $0.40
10. If the firm can sell 8 units at a price of $1.50, 14
units at a price of $1.00, 18 units at a price of $0.90,
21 units at a price of $0.70, and 23 units at a price of
$0.50, then the firm is
A. maximizing profits at a product price of $0.50
B. minimizing its costs at a product price of $1.00
C. selling in an imperfectly competitive market
D. selling in a purely competitive market
11. As a firm that sells its product in an imperfectly
competitive market increases the quantity of a
resource it employs, the marginal revenue product of
that resource falls because
A. the price paid by the firm for the resource falls
B. the marginal product of the resource falls
C. the price at which the firm sells its product falls
D. both the marginal product and the price at which
the firm sells its product fall
12. Which of the following would increase a firm's
demand for a particular resource?
A. an increase in the prices of complementary
resources used by the firm
B. a decrease in the demand for the firm's product
C. an increase in the productivity of the resource
D. an increase in the price of the particular resource
13. The substitution effect indicates that a firm will
use
A. more of an input whose relative price has
decreased
B. more of an input whose relative price has
increased
C. less of an input whose relative price has
decreased
D. less of an input whose relative price has remained
constant
14. Two resource inputs, capital and labor, are
complementary and used in fixed proportions. A
decrease in the price of capital will
A. increase the demand for labor
B. decrease the demand for labor
C. decrease the quantity demanded for labor
D. have no effect because the relationship is fixed
16. A firm is allocating its expenditure for resources
in a way that will result in the least total cost of
producing any given output when the
A. amount the firm spends on each resource is the
same
B. marginal revenue product of each resource is the
same
C. marginal product of each resource is the same
D. marginal product per dollar spent on the last unit
of each resource is the same
17. A business is employing inputs such that the
marginal product of labor is 20 and the marginal
product of capital is 45. The price of labor is $10 and
the price of capital is $15. If the business wants to
minimize costs, then it should
A. use more labor and less capital
B. use less labor and less capital
C. use less labor and more capital
D. make no change in resource use
18. Assume that a profit-maximizing computer disk
manufacturer is employing resources so that the
MRP of the last unit hired for resource X is $240
and the MRP of the last unit hired for resource Y is
$150. The price of resource X is $80 and the price of
resource Y is $50. The firm should
A. hire more of resource X and less of resource Y
B. hire less of resource X and more of resource Y
C. hire less of both resource X and resource Y
D. hire more of both resource X and resource Y
19. A firm that hires resources in a purely
competitive market is not maximizing its profits
when
A. the marginal revenue product of every resource is
equal to 1
B. the marginal revenue product of every resource is
equal to its price
C. the ratio of the marginal revenue product of every
resource to its price is equal to 1
D. the ratio of the price of every resource to its
marginal revenue product is equal to 1
Use the table below to answer the following
question.
20. Assume that a purely competitive firm uses two
resources -- labor (L) and capital (C) -- to produce a
product. In which situation would the firm be
maximizing profit?
A. A
B. B
C. C
D. D
21. A characteristic of a purely competitive labor
market would be
A. firms hiring different types of labor
B. workers supplying labor under a union contract
C. wage taker behavior by the firms
D. price maker behavior by the firms
22. The supply curve for labor in a purely
competitive market is upward sloping because
A. opportunity costs are rising
B. the marginal resource cost is constant
C. the wage rate paid to workers falls
D. the marginal revenue product rises
23. The individual firm which hires labor under
purely competitive conditions faces a supply curve
for labor which
A. is perfectly inelastic
B. is of unitary elasticity
C. is perfectly elastic
D. slopes upward from left to right
24. All of the following are characteristics of a
monopsonist except:
A. there is only a single buyer of a particular kind of
labor
B. the type of labor is relatively immobile
C. the wage rate it must pay workers varies directly
with the number of workers it employs
D. the supply curve is the marginal resource cost
curve
25. A monopsonist pays a wage rate which is
A. greater than the marginal revenue product of
labor
B. equal to the marginal revenue product of labor
C. equal to the firm's marginal labor cost
D. less than the marginal revenue product of labor
26. If a firm employs resources in imperfectly
competitive markets, to maximize its profits the
marginal revenue product of each resource must
equal
A. its marginal product
B. its marginal resource cost
C. its price
D. 1
27. Compared with a purely competitive labor
market, a monopsonistic market will result in
A. higher wage rates and a higher level of
employment
B. higher wage rates and a lower level of
employment
C. lower wage rates and a higher level of
employment
D. lower wage rates and a lower level of
employment
28. Which would increase the demand for a
particular type of labor?
A. a decrease in the wages of that type of labor
B. an increase in the prices of those resources which
are substitutes for that type of labor
C. an increase in the prices of the resources which
are complements to that type of labor
D. a decrease in the demand for the products
produced by that type of labor
29. Industrial unions typically attempt to increase
wage rates by
A. imposing an above-equilibrium wage rate on
employers
B. increasing the demand for labor
C. decreasing the supply of labor
D. forming a bilateral monopoly
Use the graph below to answer questions 30-32.
30. If the firm employing labor were a monopsonist,
the wage rate and the quantity of labor employed
would be, respectively,
A. $14 and 300
B. $13 and 400
C. $14 and 400
D. $13 and 300
31. But if the market for this labor were purely
competitive, the wage rate and the quantity of labor
employed would be, respectively,
A. $14 and 300
B. $13 and 400
C. $14 and 400
D. $13 and 300
32. If the firm employing labor were a monopsonist
and the workers were represented by an industrial
union, the wage rate would be
A. between $13 and $14
B. between $13 and $15
C. between $14 and $15
D. below $13 or above $15
Answer questions 33-36 on the basis of the
following labor market diagram, where D is the
demand curve for labor, S is the supply curve for
labor, and MRC is the marginal resource (labor)
cost.
33. If this were a purely competitive labor market,
the number of workers hired and the wage rate in
equilibrium would be
A. 4,000 and $14
B. 4,000 and $8
C. 6,000 and $10
D. 8,000 and $12
34. If this were a monopsonistic labor market, the
number of workers hired and the wage rate in
equilibrium would be
A. 4,000 and $14
B. 4,000 and $8
C. 6,000 and $10
D. 8,000 and $12
35. Suppose an inclusive union seeks to maximize
the employment of workers with the monopsonist. If
successful, the number of workers employed and the
wage rate would be
A. 4,000 and $14
B. 6,000 and $12
C. 6,000 and $10
D. 8,000 and $12
36. If the market were characterized as a bilateral
monopoly, the number of workers hired and the
wage rate in equilibrium would be
A. 6,000 and $10
B. 4,000 and $14
C. 4,000 and $8
D. indeterminate
37. A firm pays an equilibrium wage of $10 an hour
and the workers produce 10 units of output an hour.
If the firm adopts an efficiency wage and it is
successful, then the wage rate for these workers will
A. rise and output will fall
B. fall and output will rise
C. rise and output will rise
D. fall and output will fall
38. The price paid for a natural resource that is
completely fixed in supply is
A. profit
B. interest
C. rent
D. a risk payment
39. In total, the supply of land is
A. perfectly inelastic
B. of unitary elasticity
C. perfectly elastic
D. elastic but not perfectly elastic
40. The economic rent from land will increase,
ceteris paribus, whenever the
A. price of land decreases
B. demand for land increases
C. demand for land decreases
D. supply curve for land increases
41. Which of the following is most likely to shift the
demand for aircraft mechanics to the right?
(A) An increase in the demand for air travel
(B) An increase in the price of a license necessary
for aircraft mechanics
(C) A decrease in the price of a license necessary for
aircraft mechanics
(D) A decrease in the demand for air travel
(E) A decrease in the marginal productivity of
aircraft mechanics
42. A firm is producing a given quantity of output by
using labor, L, and capital, K. The marginal physical
product of labor equals 5 bushels, while that of
capital equals 10 bushels. In order to maximize its
profit,
(A) this firm should use less labor and more capital,
provided the price of labor was $20, while the
price of capital was $40.
(B) this firm should use more labor and less capital,
provided the price of labor was $20, while the
price of capital was $40.
(C) this firm should use less labor and more capital,
provided the price of labor was $40, while the
price of capital was $20.
(D) this firm should use more labor and less capital,
provided the price of labor was $40, while the
price of capital was $20.
(E) this firm should use less labor (raising MPPL)
and more capital (lowering MPPK) until the two
MPPs are equalized.
ANSWERS:
1. D
2. A
3. A
4. D
5. B
6. D
7. C
8. A
9. C
10. C
11. D
12. C
13. A
14. A
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
OOPS
D
C
D
A
B
C
A
C
D
D
B
D
B
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
A
D
C
B
C
B
C
D
C
C
A
B
A
C