Download Exhibit 13 A labor market

Chapter 11
Labor Markets
1. Alan Jones owns a company that sells life insurance. When he employs 10
salespersons his firm sells $200,000 worth of contracts per week, and when he employs
11 salespersons, total revenue is $210,000. The marginal revenue product of the 11th
salesperson is
a. $410,000.
b. $10,000.
c. $20,000.
d. $210,000.
ANS
a. Incorrect. See answer b. for correct calculation.
b. Correct. Marginal revenue product (MRP) = $210,000 - $200,000 = $10,000.
c. Incorrect. See answer b. for correct calculation.
d. Incorrect. See answer b. for correct calculation.
2. The demand for labor is
a. derived demand.
b. featherbedding demand.
c. marginal utility demand.
d. all of the above answers are correct.
ANS
a. Correct. The demand for labor is derived demand.
b. Incorrect. This is a meaningless term.
c. Incorrect. This is a meaningless term.
d. Incorrect. This is a meaningless term.
3. If product price increases, then
a. MP will increase.
b. MFC will increase.
c. MRP will increase.
d. MP will decrease.
ANS
a. Incorrect. The product price does not affect the marginal product MRP.
b. Incorrect. Marginal factor cost (MFC) refers to additional total cost from an extra
factor, which does include product price.
c. Correct. Since MRP = P x MP, an increase in price increases MRP.
d. Incorrect. The product price does not affect the marginal product MRP.
1
4. Which of the following statements is true?
a. Derived demand for labor depends on the demand for the product labor produces.
b. Unions can either increase demand or decrease the supply of labor.
c. Investment in human capital is expected to increase the demand for those workers.
d. All of the above answers are correct.
ANS
a. Incorrect. Each answer is correct.
b. Incorrect. Each answer is correct.
c. Incorrect. Each answer is correct.
d. Correct. Each answer is correct.
5. The optimal hiring rule is to employ labor up to the point where
a. wage = MFC.
b. wage = MP.
c. wage = MR.
d. wage = MRP.
ANS
a. Incorrect. The optimal hiring rule is to employ labor up to the point where wage
= MRP.
b. Incorrect. The optimal hiring rule is to employ labor up to the point where wage
= MRP.
c. Incorrect. The optimal hiring rule is to employ labor up to the point where wage
= MRP.
d. Correct. The optimal hiring rule is to employ labor up to the point where wage
= MRP.
Exhibit 12 A perfectly competitive labor market
Quantity
of Labor
(thousands)
5
10
15
20
25
Marginal
Revenue Product
Total
Labor Cost
$25.00
20.00
15.00
10.00
5.00
$ 5.00
10.00
15.00
20.00
25.00
2
6. In Exhibit 12, when the marginal revenue product is $20.00, firms should
a. continue hiring.
b. stop hiring.
c. start firing.
d. pay a wage above $15.00 to its workers.
ANS
a. Correct. Since MRP exceeds the equilibrium wage rate of $15.00, it is profitable to hire
more workers.
b. Incorrect. Since MRP exceeds the equilibrium wage rate of $15.00, it is profitable to
hire more workers.
c. Incorrect. Since MRP exceeds the equilibrium wage rate of $15.00, it is profitable to
hire more workers.
d. Incorrect. In a perfectly competitive labor market, the equilibrium wage rate of $15.00
will be paid.
7. In Exhibit 12, how many thousands of workers are the firms willing to hire?
a. 20
b. 10
c. 15.
d. All 25 workers
ANS
a. Incorrect. At 20 thousand workers, the equilibrium wage rate exceeds the MRP, and it
is profitable to hire less workers.
b. Incorrect. At 10 thousand workers, firms hire more workers because the MRP exceeds
the equilibrium wage rate.
c. Correct. Firms will hire 15 thousand workers because the equilibrium wage rate equals
the marginal revenue product.
d. Incorrect. At 25 thousand workers, the equilibrium rate exceeds the MRP, and it is
profitable to hire fewer workers.
8. What happens to the MP of labor when the market price of the good produced
increases?
a. Increases proportional to price
b. Decreases proportional to price
c. Stays the same
d. Falls because quantity demanded falls
ANS
a. Incorrect. The MP of labor is unaffected by the product price and quantity demanded.
b. Incorrect. The MP of labor is unaffected by the product price and quantity demanded.
c. Correct. The MP of labor is unaffected by the product price and quantity demanded.
d. Incorrect. The MP of labor is unaffected by the product price and quantity demanded.
3
9. A union can influence the demand for labor by
a. requiring union fees.
b. raising union fees.
c. effective advertising that convinces customers to buy the "union label."
d. all of the answers are correct.
ANS
a. Incorrect. This would not affect the demand for labor.
b. Incorrect. This would not affect the demand for labor.
c. Correct. If effective advertising could increase the product price and in turn MRP
(demand for labor).
d. Incorrect. Answer c. is correct.
10. A union can influence the equilibrium wage rate by
a. collective bargaining.
b. featherbedding.
c. lobbying for legislation to reduce immigration.
d. all of the above answers are correct.
ANS
a. Incorrect. Each answer is correct.
b. Incorrect. Each answer is correct.
c. Incorrect. Each answer is correct.
d. Correct. Each answer is correct.
11. Which of the following countries has the largest union membership measured as the
percentage of civilian employees in unions?
a. The United States
b. Japan
c. The United Kingdom
d. Sweden
ANS
a. Incorrect. The United States has about 14 percent union membership. See Exhibit 10 in
the text.
b. Incorrect. Japan has about 25 percent union membership. . See Exhibit 10 in the text.
c. Incorrect. The United Kingdom has over 30 percent membership union. . See Exhibit
10 in the text.
d. Correct. Sweden has over 80 percent union membership. . See Exhibit 10 in the text.
4
12. Suppose a firm can hire 100 workers at $8.00 per hour but must pay $8.05 per hour to
hire 101 workers. Marginal factor cost (MFC) for the 101st worker is approximately
equal to
a. $8.00.
b. $8.05.
c. $13.05.
d. $13.00.
ANS
a. Incorrect. See answer c. for the correct calculation.
b. Incorrect. See answer c. for the correct calculation.
c. Correct. Change in total cost equals $813.05 (101 x $8.05) - $800 ($8.00 x 100).
d. Incorrect. See answer c. for the correct calculation.
Exhibit 13 A labor market
8
7
6
E
D
Labor
supply
F
C

0
Marginal
factor cost
(MFC)
G
5
Wage rate
(dollars 4
per hour)
3
2
1
H
Labor
demand
(MRP)
B
A
10
20
30
40
50
Quantity of labor
(workers per hour)
13. If the labor market shown in Exhibit 13 is competitive, the wage rate and number of
workers employed will be determined at point
a. A.
b. B.
c. C.
d. D.
e. F.
5
ANS
a. Incorrect. In a competitive labor market, the equilibrium wage rate occurs where the
MRP equals the labor supply curve at point F.
b. Incorrect. In a competitive labor market, the equilibrium wage rate occurs where the
MRP equals the labor supply curve at point F.
c. Incorrect. In a competitive labor market, the equilibrium wage rate occurs where the
MRP equals the labor supply curve at point F.
d. Incorrect. In a competitive labor market, the equilibrium wage rate occurs where the
MRP equals the labor supply curve at point F.
e. Correct. In a competitive labor market, the equilibrium wage rate occurs where the
MRP equals the labor supply curve at point F.
14. If the labor market shown in Exhibit 13 is a monopsony, the wage rate and number of
workers employed will be determined at point
a. A.
b. B.
c. C.
d. D.
e. F.
ANS
a. Incorrect. A monoposony hires workers determined by the intersection of MFC and
MRP at point B.
b. Correct. A monoposony hires workers determined by the intersection of MFC and
MRP at point B.
c. Incorrect. A monoposony hires workers determined by the intersection of MFC and
MRP at point B.
d. Incorrect. A monoposony hires workers determined by the intersection of MFC and
MRP at point B.
e. Incorrect. A monoposony hires workers determined by the intersection of MFC and
MRP at point B.
15. For a monopsonist
a. wage > TWC.
b. wage > MFC.
c. wage = MFC.
d. wage = MRP.
e. wage < MFC
6
ANS
a. Incorrect. Workers are exploited because the wage paid by a monopsonist is below
MRP.
b. Incorrect. Workers are exploited because the wage paid by a monopsonist is below
MRP.
c. Incorrect. Workers are exploited because the wage paid by a monopsonist is below
MRP.
d. Incorrect. Workers are exploited because the wage paid by a monopsonist is below
MRP.
e. Correct. Workers are exploited because the wage paid by a monopsonist is below
MRP.
16. A technological advance that increases the productivity of teachers can be expected to
have what effects on the equilibrium labor market for teachers?
a. Wages will rise, and quantity of labor will fall.
b. Wages will rise, and quantity of labor will rise.
c. Wages will fall, and quantity of labor will fall.
d. Wages will fall, and quantity of labor will rise.
e. Wages and quantity of labor will remain the same.
ANS
a. Incorrect. A technological advance increases MRP (demand) causing wages and the
quantity of labor to rise.
b. Correct. A technological advance increases MRP (demand) causing wages and the
quantity of labor to rise.
c. Incorrect. A technological advance increases MRP (demand) causing wages and the
quantity of labor to rise.
d. Incorrect. A technological advance increases MRP (demand) causing wages and the
quantity of labor to rise.
17. The optimal number of workers to be hired by a firm operating in a competitive labor
market is where
a. P = MRP.
b. MP = MRP.
c. MRP = w.
d. P = w.
ANS
a. Incorrect. In a competitive labor market, firms hire workers until marginal revenue
product (MRP) equals the wage rate (W).
b. Incorrect. In a competitive labor market, firms hire workers until marginal revenue
product (MRP) equals the wage rate (W).
7
c. Correct. In a competitive labor market, firms hire workers until marginal revenue
product (MRP) equals the wage rate (W).
d. Incorrect. In a competitive labor market, firms hire workers until marginal revenue
product (MRP) equals the wage rate (W).
18. A technological advance that increases labor productivity will
a. lower wages.
b. decrease the demand for labor as fewer workers are needed.
c. decrease the supply of labor as fewer workers are needed.
d. increase the demand for labor as MP rises.
e. decrease the demand for labor as MP falls.
ANS
a. Incorrect. In this case, the wage rate increases because demand (MRP) increases.
b. Incorrect. The demand for labor increases and more workers are hired.
c. Incorrect. A technological advance does not affect the supply of labor.
d. Correct. The reason the MRP rises is because it equal the product price times the
marginal product and a technological advance increase the marginal product (MP).
19. A monopsonist's marginal factor cost (MFC) curve lies above its supply curve
because the firm must
a. lower the factor price to hire more.
b. increase the price of its product to sell more.
c. increase the factor price to hire more.
d. lower the product price to sell more.
ANS
a. Incorrect. MFC is based on the assumption that the monopsonist can hire more workers
only by raising the wage rate of all workers hired.
b. Incorrect. The product price does not determine MFC.
c. Correct. MFC is based on the assumption that the monopsonist can hire more workers
only by raising the wage rate of all workers hired.
d. Incorrect. The product price does not determine MFC.
Exhibit 14 Labor and wage rate data
Labor
6
7
8
9
10
Wage
$12
13
14
15
16
20. In Exhibit 14, the marginal factor cost of the 8th employee is
a. $14.
b. $13.
c. $21.
8
d. $23.
e. $112.
ANS
a. Incorrect. See answer c. for the correct calculation.
b. Incorrect. See answer c. for the correct calculation.
c. Correct. At 8 workers the monopsonist pays all workers $112 (8 x $14). At 7 workers
the total factor cost is $91 (7 x $13). MFC is the difference of $21 ($112 - $91).
d. Incorrect. See answer c. for the correct calculation.
e. Incorrect. See answer c. for the correct calculation.
9
10