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CHAPTER 12—LABOR MARKETS
MULTIPLE CHOICE
1) A market in which resources are traded is known as a(n)
a. factor market
b. perfectly competitive market
c. open market
d. closed market
e. equilibrium market
Answer: A
2) In factor markets, firms __________ and households ____________.
a. demand resources; supply resources
b. supply resources; demand resources
c. demand resources; demand goods
d. supply resources; demand goods
e. supply resources; supply goods
Answer: A
3) In factor markets,
a. individual consumers are the demanders
b. equilibrium cannot be defined
c. there is an excess supply
d. firms are the demanders
e. labor and capital are viewed by firms as perfect substitutes
Answer: D
4) A labor market differs from a product market because
a. in a labor market, firms are suppliers and households are demanders
b. the usual laws of economics do not apply to labor markets
c. supply and demand are only relevant for labor markets
d. supply and demand are only relevant for product markets
e. in a labor market, firms are demanders and households are suppliers
Answer: E

5) The most appropriate type of labor market to analyze
a. is the world market
b. is the national market
c. is a regional market
d. is a local market
e. depends upon the purpose of the analysis
Answer: E
6) Each of the following, except one, is a condition that characterizes a perfectly competitive
labor market. Which is the exception?
a. Workers appear identical to firms.
b. Workers receive wages that are above their marginal revenue product (MRP).
c. There are no barriers to entering the labor market.
d. There are no barriers to exiting from the labor market.
e. There are many buyers of labor in the market.
Answer: B
7) Each of the following conditions, except one, must be satisfied in a perfectly competitive
labor market. Which is the exception?
a. There are a large number of buyers of labor services.
b. Wages are the sole source of household income.
c. There are no barriers to entering the market.
d. There are a large number of sellers of labor services.
e. All workers appear the same to buyers of labor services.
Answer: B
8) The perfectly competitive model is most likely to apply to a labor market in which
a. many well-informed firms must negotiate with one dominant labor union
b. there are a few firms, and they are uninformed about the attributes of each worker
c. there are many workers currently in the market who must negotiate with one dominant firm
d. there are many well-informed workers and firms, and each worker appears the same to
firms
e. one dominant labor union must negotiate with one dominant firm
Answer: D

9) Which of the following would prevent a labor market from being classified as perfectly
competitive?
a. It is difficult for new workers to enter the market.
b. All workers have the same abilities.
c. Exiting the market is easy for workers who are currently in the market.
d. Both buyers and sellers of labor are well-informed about market conditions.
e. Each firm hires only a tiny fraction of the total labor in the market.
Answer: A
10) In a perfectly competitive labor market,
a. some workers may be prevented from leaving the labor market
b. workers compete for employment opportunities
c. workers usually receive wages that are greater than their marginal revenue product
d. firms view all workers as being identical
e. there are relatively few sellers of labor services
Answer: D
11) Which of the following is an assumption made about a competitive labor market?
a. A firm must offer a higher wage rate to attract more labor.
b. A firm must offer a lower wage rate to attract more labor.
c. A firm cannot influence the market wage rate.
d. The labor supply curve facing each firm is inelastic.
e. Workers compete for jobs and firms pay a variety of wage rates.
Answer: C
12) In a perfectly competitive labor market, no individual firm's employment decision can
affect the market wage because
a. union agreements prevent any firm from altering the wage rate
b. each firm is ignorant of the market wage rate
c. the demand for labor is a derived demand
d. each firm hires a very small portion of the labor services available
e. the wage rate is regulated by the government
Answer: D
13) In a perfectly competitive labor market

a. all firms are wage takers
b. all firms are wage searchers
c. all firms sell their output at a constant price
d. none of the firms that demand labor can be monopolists
e. some firms may be able to influence the wage rate as long as most firms cannot
Answer: A
14) A firm that sells its output and hires its labor in perfectly competitive markets
a. controls the price of its output, but accepts the wage rate it pays as given
b. controls both the price of its output and the wage rate it pays
c. controls the rate it pays, but accepts the price of its output as given
d. accepts both the price of its output and the wage rate it pays as given
e. controls the price of its output, the wage rate it pays, and its own output level
Answer: D
15) If a firm produces in a perfectly competitive output market,
a. then it demands its resources in perfectly competitive input markets
b. then it demands labor in a perfectly competitive labor market
c. the type of market in which it demands labor may be perfectly competitive or imperfectly
competitive
d. the labor demand curve is the same as its product demand curve
e. the labor demand curve facing the firm is perfectly elastic
Answer: C
16) A firm’s labor demand curve is derived from the demand for the goods and services it
produces.
a. True
b. False
Answer: A
17) A firm’s labor demand curve is derived from the supply of the goods and services it
produces.
a. True
b. False
Answer: B

18) To say that the demand for labor is a derived demand means that
a. the quantity of labor is derived by the real wage rate
b. the demand for labor depends upon the demand for the product produced by labor
c. the supply of labor rises when the demand for labor falls
d. equilibrium in the resource market ensures there is equilibrium in the product market
e. changes in the demand for labor lead to changes in the demand for the product produced by
labor
Answer: B
19) If the demand for automobiles increases, which of the following would also experience
an increase in demand?
a. automobile workers
b. skateboards
c. bicycle manufacturers
d. ice cream
e. financial analysts
Answer: A
20) The demand for labor curve depicts
a. a relationship between the price of a good and the quantity of labor necessary to produce
different amounts of that good
b. a relationship between wages and profits in a firm
c. how the wage rate changes when the price of the good produced by labor changes
d. a relationship between the real wage rate and the quantity of labor demanded
e. how much labor will be hired at different profit levels
Answer: D
21) In a perfectly competitive labor market, if any one firm decreases the amount of labor it
employs, the most likely result will be that the
a. market wage rate will rise
b. firm's revenue and cost will fall
c. market wage will fall
d. firm's revenue and cost will rise
e. firm's revenue will fall, but its cost will remain unchanged
Answer: B

22) The wage rate is constant along a firm’s labor demand curve.
a. True
b. False
Answer: B
23) A change in the wage rate causes a firm’s labor demand curve to shift.
a. True
b. False
Answer: B
24) If both the market for a firm's output and the market in which it hires its labor are
perfectly competitive, the firm's labor demand curve will be perfectly elastic.
a. True
b. False
Answer: B
25) A firm's labor demand curve shows the relationship between the
a. wage rate and the quantity of labor supplied
b. marginal revenue product of labor and the marginal product of labor
c. wage rate and the quantity of labor demanded
d. marginal product of labor and the quantity of labor demanded
e. wage rate and the quantity demanded of the good produced by labor
Answer: C
26) Which of the following statements about a firm's demand curve for labor is true?
a. It shows the relationship between the price of output and the quantity of output demanded.
b. It usually has a negative slope.
c. It is perfectly inelastic.
d. It is derived from the labor supply curve.
e. It is parallel to the demand curve for the firm's product.
Answer: B
27) Which of the following is true along the demand curve for labor?
a. The marginal cost of labor is constant.
b. The wage rate is constant.
c. The total cost of production is constant.

d. The quantity of labor demanded is constant.
e. The prices of all other inputs are constant.
Answer: E
28) The demand for labor is likely to decrease if
a. there is a rise in the demand for the good it produces
b. the price of a complementary input falls
c. the price of a substitute input rises
d. there is a decline in the demand for the good it produces
e. there is an increase in the number of firms in the market
Answer: D
29) As baby boomers move into their retirement years, the incomes of geriatricians (doctors
for the aged) will most likely
a. fall due to a fall in the demand for geriatricians
b. rise due to a fall in the price of complementary inputs
c. rise due to a rise in the demand for geriatricians
d. fall due to a drop in the number of medical providers
e. rise due to a rise in the supply of geriatricians
Answer: C
30) All of the following, except one, would shift the demand curve for pizza makers to the
right. Which is the exception?
a. a decrease in the wage rate of pizza makers
b. an increase in the demand for pizza
c. a decrease in the price of pizza ovens
d. an increase in the number of pizza parlors
e. an improvement in the technology of making pizza
Answer: A
31) The demand for labor depends upon each of the following, except one. Which is the
exception?
a. the level of technology
b. the quantity of labor available
c. the prices of complements to labor

d. the prices of substitutes for labor
e. the number of firms hiring in that labor market
Answer: B
32) An increase in the wage rate will cause the labor supply curve to shift to the right.
a. True
b. False
Answer: B
33) The labor supply curve shows the relationship between the
a. wage rate and the total quantity of labor demanded by firms
b. wage rate and the total quantity of labor supplied by individuals
c. wage rate and the total quantity of labor supplied by firms
d. wage rate and the total quantity of labor demanded by individuals
e. marginal revenue product of labor and the marginal physical product of labor
Answer: B
34) As the market wage rate increases, it will exceed more individuals' reservation wage
rates; this ensures the market supply of labor curve will be upward sloping.
a. True
b. False
Answer: A
35) If the wage rate increases, there is an increase in the quantity of labor supplied. This
means the labor supply curve shifts outward.
a. True
b. False
Answer: B
36) An increase in the wage rate will cause
a. increased employment
b. a leftward shift in the labor supply curve
c. an upward movement along the labor supply curve
d. a rightward shift of the labor supply curve
e. a leftward shift of the labor demand curve
Answer: C

37) Which of the following could explain a movement from point F to point G in Figure 121?
a. an increase in the average reservation wage
b. a shift in tastes toward working in this labor market
c. an increase in the market wage in this labor market
d. an improvement in technology
e. an increase in the cost of training needed to work in this labor market
Answer: C
38) In a perfectly competitive labor market, the supply of labor curve facing a firm will be
a. horizontal
b. vertical
c. upward sloping
d. downward sloping
e. equal to its marginal revenue product curve
Answer: A
39) In a perfectly competitive labor market, the market labor supply curve
a. will be horizontal
b. will be vertical
c. will be upward sloping
d. will be downward sloping

e. could be downward sloping if firms produce inferior goods
Answer: C
40) The labor supply curve is obtained by
a. summing the slopes of the marginal revenue product curves for individual firms
b. summing the upward-sloping portions of individual workers' labor supply curves
c. summing all individual workers' labor supply curves at each wage
d. summing the downward-sloping portions of individual workers' labor supply curves
e. averaging all individual workers' labor supply curves at each wage
Answer: C
41) The labor supply curve is typically upward sloping because as the wage rate rises,
a. it will exceed the reservation wages of more individuals
b. the opportunity cost of leisure falls
c. the demand for the good produced by labor increases
d. the marginal revenue product of labor falls
e. the marginal revenue product of labor rises
Answer: A
42) Wage rates in other markets are assumed constant along the labor supply curve for a
particular labor market.
a. True
b. False
Answer: A

43) Which of the following could explain a movement from point F to point H in Figure 122?
a. decreased labor force participation rates
b. an increase in the market wage in an alternative labor market
c. a decrease in the price of a input substitutable for labor
d. a decrease in the number of years of training needed to work in this market
e. a decrease in the population in the geographic area of this market
Answer: D
44) Which of the following could explain an increase in labor supply to a particular labor
market?
a. a reduced preference for this type of work
b. a decrease in the size of the population
c. an increase in the number of firms in the market
d. a rightward shift of the marginal revenue product curve for labor at a typical firm
e. a reduction in wage rates for similar types of work
Answer: E
45) Which of the following could explain a decrease in labor supply to a particular labor
market?
a. an increased preference for this type of work
b. a decrease in the size of the population
c. an increase in the number of firms in the market
d. a leftward shift of the marginal revenue product curve of labor at a typical firm
e. a reduction in wages rates for similar types of work
Answer: B
46) As the wage rate increases for computer programmers, the
a. supply curve for computer programmers will shift to the right
b. supply curve for computer programmers will shift to the left
c. demand curve for computer programmers will shift to the left
d. minimum wage will fall in this labor market
e. supply curves for workers in similar industries will shift to the left
Answer: E

47) An increase in tuition rates for astronomy students would
a. decrease the wage rate for astronomers
b. cause the demand curve for astronomers to shift to the right
c. cause the demand curve for astronomers to shift to the left
d. lead to future reductions in the labor supply of astronomers
e. lead to a rise in the marginal revenue product of astronomers
Answer: D
48) If the federal government initiated a program through which individuals could receive a
tax break for acquiring additional training in selected fields, the
a. supply curve for labor in those fields would shift to the left
b. demand curve for labor in those fields would shift to the left
c. demand for the product produced in those fields would shift to the left
d. quantity of labor supplied would rise in response to wages
e. supply curve for labor in those fields would shift to the right
Answer: E
49) Each of the following, except one, would lead to a rightward shift of the labor supply
curve in a particular industry. Which is the exception?
a. increased preference for this type of work
b. increases in the demand for the good produced by labor
c. increases in the size of the population
d. reductions in the wage rates offered in alternative labor markets
e. reductions in the costs of acquiring human capital
Answer: B
50) Which of the following groups of workers would be considered part of the short-run
supply of court reporters in the Chicago area-labor market?
a. individuals in the Chicago area who are undergoing training as court reporters
b. trained court reporters in Indianapolis who are seeking information about relocating to
Chicago
c. trained court reporters and individuals undergoing training in the Chicago area
d. unemployed, trained court reporters who are seeking work in an alternative field in the
Chicago area
e. trained court reporters working or seeking work as court reporters in the Chicago area

Answer: E
51) A local labor market for lawn-mowing workers is initially in equilibrium. If researchers
develop a new inexpensive grass seed that provides a lush, slow-growing lawn, which of the
following will occur in the short run?
a. Both labor demand and labor supply will drop, leading to a higher wage rate but lower
employment.
b. Both labor demand and labor supply will rise, leading to a lower wage rate and lower
employment.
c. Labor demand will drop, leading to a lower wage rate and higher employment.
d. Labor supply will drop, leading to a higher wage rate and lower employment.
e. Labor demand will drop, leading to a lower wage rate and lower employment.
Answer: E
52) Assume that the labor market for auto mechanics is initially in equilibrium. Which of the
following would lead to an increase in both the wage rate and employment for auto
mechanics?
a. a decrease in the price of a substitutable input
b. a decrease in the price of a complementary input
c. an increase in training costs for auto mechanics
d. a decrease in wages in an alternate labor market
e. a decrease in demand for the output of firms employing auto mechanics
Answer: B
53) An increase in the cost of acquiring human capital will shift the labor supply curve to the
left; eventually, this will tend to decrease the equilibrium wage rate.
a. True
b. False
Answer: B
54) An increase in the cost of acquiring human capital will shift the labor supply curve to the
left; eventually, this will tend to increase the equilibrium wage rate.
a. True
b. False
Answer: A
55) The local labor market for lawn-mowing workers is initially in equilibrium. These
workers are also able to clean swimming pools and have no preference for one job over the

other. If the wage rate for pool cleaning rises, which of the following would occur in the
lawn-mowing labor market?
a. Both labor demand and labor supply will drop, leading to a lower wage rate and lower
employment.
b. Both labor demand and labor supply will rise, leading to a higher wage rate and lower
employment.
c. Labor supply will drop, leading to a higher wage rate and lower employment.
d. Labor supply will drop, leading to a lower wage rate and lower employment.
e. Labor demand will drop, leading to a lower wage rate and lower employment.
Answer: C

56) Figure 12-3 illustrates the marginal revenue product of labor and three possible labor
supply curves facing a firm that hires industrial design engineers. The firm initially is in
equilibrium at point
e. Then, the cost of training rises for new industrial design engineers. Assume that the full
impact of the change in training costs is indicated by one of the curves in the figure. After all
long-run adjustments are made, this firm pays a wage
a. of $18 per hour and employs 29 industrial design engineers
b. of $26 per hour and employs 20 industrial design engineers
c. between $22 and $26 per hour, while employing less than 20 industrial design engineers
d. between $18 and $22 per hour, while employing more than 29 industrial design engineers
e. between $18 and $22 per hour, while employing between 25 and 29 industrial design
engineers

Answer: B
57) Figure 12-3 illustrates the marginal revenue product of labor and three possible labor
supply curves facing a firm that hires industrial design engineers. The firm initially is in
equilibrium at point
e. Then, the government initiates a subsidy for the cost of training for new industrial design
engineers, lowering the cost of training. Assume that the full impact of the change in training
costs is indicated by one of the curves in the figure. After all long-run adjustments are made,
this firm pays a wage
a. of $18 per hour and employs 29 industrial design engineers
b. of $26 per hour and employs 20 industrial design engineers
c. between $22 and $26 per hour, while employing less than 20 industrial design engineers
d. between $18 and $22 per hour, while employing more than 29 industrial design engineers
e. between $18 and $22 per hour, while employing between 25 and 29 industrial design
engineers
Answer: A
58) The labor market for ultrasound technicians in Cleveland is initially in equilibrium.
Which of the following would lead to a lower wage rate and higher employment in that
market?
a. a drop in demand for diagnostic services at Cleveland hospitals
b. a drop in the price of ultrasound equipment
c. an increase in the length of training required for ultrasound technicians
d. a shift in potential workers' tastes away from hospital and clinical work
e. a wage decrease for ultrasound technicians in nearby cities
Answer: E
59) The wage premium for the average college graduate (vs. the average high school
graduate) has gone up significantly in recent years.
a. True
b. False
Answer: A
60) The wage premium for the average college graduate (vs. the average high school
graduate) has gone down significantly in recent years.
a. True
b. False
Answer: B

61) Jordan and Jennifer are musicians in New Orleans. Ezra is a musician thinking about
moving to New Orleans. Which of the following statements is correct?
a. The wage needed to keep Jordan and Jennifer in the New Orleans music industry in the
long run will be lower than the wage needed to keep them in the industry in the short run.
b. The costs of entering the New Orleans music industry are sunk costs for Jordan, Jennifer,
and Ezra.
c. The costs of entering the New Orleans music industry are sunk costs for Ezra but not for
Jordan and Jennifer.
d. The wage needed to induce Ezra to enter the New Orleans music industry will be lower
than the wage needed to keep him in the industry after he enters.
e. The costs of entering the music industry in New Orleans are sunk costs for Jordan and
Jennifer, but not for Ezra.
Answer: E
62) Amos is a baker in Tucson. Which of the following statements is correct?
a. The wage needed to keep Amos in the bakery industry in Tucson in the long run is lower
than the wage needed to keep him in the industry in the short run.
b. The costs of entering the bakery industry in Tucson are sunk costs and therefore those
costs shouldn’t be a consideration in Amos’s decision to stay in the industry.
c. The wage needed to keep Amos in the bakery industry in Tucson in the short run is lower
than the wage needed to keep him in the industry in the long run.
d. The wage needed to keep Amos in the bakery industry in Tucson in the long run is not
important -- only the short-run wages are relevant.
e. The costs of entering the bakery industry in Tucson are sunk costs and therefore those costs
should be considered in Amos’s decision to stay in the industry.
Answer: B
63) The marginal approach to profit
a. says that a firm should take any action that adds more to cost than it adds to revenue
b. says that a firm should take any action that adds more to revenue than it adds to cost
c. says that a firm should strive to set profit equal to zero.
d. says that a firms profit is maximized when average revenue equals average cost
e. says that profit should be marginalized
Answer: B
64) For any resource it hires, a firm's marginal revenue product
a. is the change in the firm's total cost divided by the change in employment of that resource

b. equals the resource’s marginal factor cost
c. equals marginal cost
d. is the change in the firm's total revenue divided by the change in employment of that
resource
e. equals the change in the firm's marginal revenue
Answer: D
65) The presence of diminishing marginal returns to labor leads to decreasing marginal
revenue product of labor and a downward-sloping demand for labor curve.
a. True
b. False
Answer: A
66) If eight workers can manufacture 70 tables per day and nine workers can manufacture 90
tables per day,
a. the marginal product of hiring the ninth worker is 20 tables
b. the marginal product of hiring the ninth worker is 10 tables
c. the marginal revenue associated with the ninth worker is $90 if nine tables sell for $10 each
d. there are diminishing marginal returns to labor, starting with the ninth worker
e. average revenue is rising
Answer: A

67) Figure 12-4 shows the number of calculators that can be produced daily by various
numbers of workers. What is the marginal product of hiring the fifth worker?
a. 60 calculators
b. 40 calculators
c. 280 calculators
d. 300 calculators
e. 20 calculators

Answer: E
68) The marginal product of labor
a. measures the contribution to total output of the average worker
b. is a characteristic of production, not of an individual worker
c. measures the personal productivity of the last worker hired
d. measures the extra revenue generated by the last worker hired
e. measures the extra cost attributed to the last worker hired
Answer: B

69) Figure 12-5 shows the number of baseballs a manufacturer can produce each day with
different quantities of labor. Each baseball sells for $5 in a competitive market. For which
level of employment is the marginal product of labor is greatest?
a. 1 worker
b. 2 workers
c. 3 workers
d. 4 workers
e. 5 workers
Answer: B
70) Figure 12-5 shows the number of baseballs a manufacturer can produce per day with
different quantities of labor. Each baseball sells for $5 in a competitive market. The total
revenue per day for the firm if it employs five workers is
a. $500
b. $300
c. $2,200
d. $5,000
e. $2,500
Answer: E

71) For a firm producing in a perfectly competitive product market, the marginal revenue
product of labor eventually
a. falls due to diminishing marginal returns to labor
b. rises due to diminishing marginal returns to labor
c. falls due to a falling product price
d. falls due to a rising product price
e. rises due to falling marginal productivity of labor
Answer: A
72) An increasing marginal product of labor would be most commonly found
a. at high levels of employment
b. in perfect competition
c. at low levels of employment
d. when a product price is rising
e. when a product price is falling
Answer: C
73) If a firm is experiencing diminishing marginal returns to labor,
a. the additional increments to output become smaller as more labor is used
b. total output falls as more labor is used
c. total output remains constant as more labor is used
d. additional increments to output rise as more labor is used
e. total revenue falls as more labor is used
Answer: A
74) The term marginal revenue product (MRP) refers to the change in output if an additional
worker is employed.
a. True
b. False
Answer: B
75) Both marginal revenue and marginal revenue product refer to the gains to the firm from
employing one additional worker.
a. True
b. False

Answer: B
76) The marginal revenue product (MRP) of labor is the
a. total revenue generated when one more worker is hired
b. change in average revenue when one more worker is hired
c. total revenue per worker when one more worker is hired
d. change in total revenue when one more worker is hired
e. change in employment when total revenue changes by one dollar
Answer: D
77) The additional output produced when one additional worker is hired is referred to as the
__________ of labor.
a. marginal revenue product
b. marginal revenue
c. supply
d. marginal product
e. total revenue product
Answer: D
78) If bicycles can be sold for $100 each, and the marginal product of hiring a third worker is
2 bicycles, then the marginal revenue product from hiring that worker is
a. 2 bicycles
b. $200
c. $100
d. $1,000
e. $300
Answer: B

79) Figure 12-6 shows the production function for a firm that sells its output in a perfectly
competitive market where the market price is $20. Between the second and third workers, the
marginal revenue product of labor equals
a. $200
b. $2,000
c. $600
d. $4,000
e. $1,200
Answer: E
80) Sally's Salon sells haircuts in a perfectly competitive market. As the salon hires additional
workers, the marginal revenue product of labor
a. rises whenever the marginal product of labor falls
b. is equal to the market price of haircuts
c. falls whenever the marginal product of labor falls
d. varies only if the market price of haircuts varies
e. remains constant
Answer: C

81) Figure 12-7 shows the number of calculators that can be assembled each day by various
numbers of workers. If calculators sell in a perfectly competitive market where the price per
calculator is $20, what is the marginal revenue product (MRP) of hiring the second worker?
a. $20
b. $2,000
c. $100
d. $1,600
e. $3,200
Answer: B

82) One seamstress can sew 2 dresses per day and two seamstresses can sew 5 dresses per
day. If the marginal revenue product of hiring the second seamstress is $360, then in a
competitive product market
a. there are decreasing returns to scale
b. there are diminishing returns to labor
c. each dress sells for $120
d. the seamstresses are earning zero economic profits in the short run
e. marginal cost of production is $120
Answer: C
83) The marginal revenue product of labor
a. increases as more labor is hired
b. is independent of the quantities of other inputs used by the firm
c. is measured while varying the amounts of all inputs used by the firm
d. is independent of the price of the firm's output
e. depends on the quantities of other inputs used by the firm
Answer: E

84) Figure 12-8 provides production data for Peg's Pie Shop, indicating the output per day
with different numbers of employees. The shop sells its pies and hires its labor in perfectly
competitive markets. Currently, the equilibrium price of a pie is $5, and the equilibrium wage
rate is $80 per day. In order to maximize profit, Peg's Pie Shop should hire
a. 1 worker
b. 2 workers
c. 3 workers
d. 4 workers
e. 5 workers
Answer: D

85) Wally's Wheat Farm sells its output and hires its labor in perfectly competitive markets.
In the short run, Wally can vary only one input-labor. In short-run equilibrium, all of the
following conditions, except one, will be satisfied. Which is the exception?
a. The marginal revenue product of labor equals the wage rate.
b. The marginal revenue product of labor would decrease if more labor is hired.
c. Marginal revenue equals the price of the firm's output.
d. The marginal product of labor would decrease if more labor is hired.
e. The firm's total revenue will decrease if more labor is hired.
Answer: E

86) Figure 12-9 shows the number of baseballs a manufacturer can produce per day with
different quantities of labor. Each baseball sells for $5. If the wage rate is $380 per day, the
firm
a. should hire two workers
b. should hire five workers
c. cannot justify hiring any workers
d. should hire four workers
e. should hire three workers
Answer: D
87) A perfectly competitive firm should hire additional units of labor in a competitive labor
market if
a. marginal revenue is less than marginal cost
b. the marginal revenue product exceeds the wage rate
c. total revenue exceeds total cost
d. the marginal product of labor exceeds the wage rate
e. the marginal product of labor is less than the wage rate
Answer: B

88) A firm can maximize profit by hiring labor up to the point where
a. the marginal revenue product equals the wage rate
b. the marginal product equals marginal cost
c. total revenue equals total cost
d. the marginal revenue product equals marginal product
e. the marginal revenue product is zero
Answer: A
89) If labor is the only variable input, a firm's labor demand curve is
a. labor's marginal product curve
b. the upward-sloping portion of its marginal revenue product of labor curve
c. the downward-sloping portion of its marginal revenue product of labor curve
d. the marginal revenue product of labor curve above the reservation wage rate
e. the marginal revenue product of labor curve above the average variable cost curve
Answer: C
90) If labor is the only variable input, a firm's labor demand curve is the
a. entire marginal revenue product of labor curve
b. downward-sloping portion of its marginal revenue product of labor curve
c. downward-sloping portion of its marginal product of labor curve
d. demand curve for the product produced by labor
e. downward-sloping portion of the firm's marginal revenue curve
Answer: B
91) One baker can bake 15 pies in a day. Two bakers can bake 35 pies in a day. If the
marginal revenue product of hiring the second baker is $200, then in a perfectly competitive
product market
a. each pie sells for $10.
b. there are diminishing marginal returns.
c. there are decreasing economies of scale.
d. they are operating in a constant cost industry.
e. the marginal cost of production is $200.
Answer: A

92) Three accountants can prepare 5 tax returns a day and four accountants can prepare 7 tax
returns a day. If the marginal revenue product of hiring the fourth accountant is $300, then in
a perfectly competitive product market the price of each tax return is
a. $250
b. $100
c. $300
d. $200
e. $150
Answer: E
93) The relationship between the marginal product of labor (MP), the product price (P) and
the marginal revenue product of labor (MRP) in a perfectly competitive market is
a. MP = P x MRP
b. MP = P + MRP
c. MRP = P / MP
d. MRP = P x MP
e. MRP = P + MP
Answer: D
94) The relationship between the marginal product of labor (MP), the product price (P), and
marginal revenue product of labor (MRP) in a perfectly competitive market is
a. MP = P x MRP
b. MP = MRP / P
c. MRP = P + MP
d. MRP = P / MP
e. MP = P + MRP
Answer: B
95) Tova is trying to get a bakery to hire her. She said that if she helped out, the shop could
sell an additional 5 cakes per day. If each cake sells for $10 and the owner hires her, then
a. the wage rate must be at least $51 per day.
b. Tova’s marginal revenue product must be less than the wage rate.
c. Tova’s marginal revenue product must be positive.
d. the wage rate must be at most $50 per day.
e. the wage rate must be equal to $40 per day.

Answer: D
96) Gerhardt is a bicycle mechanic, and he can repair 6 bikes a day at a market price of
$25.00. If he can’t find any bike shop to hire him,
a. the wage rate must be more than $150 per day.
b. the wage rate must be less than $25 per day.
c. then Gerhardt’s marginal revenue product must be negative.
d. the wage rate must be less than $150 per day.
e. then Gerhardt’s marginal product must be negative.
Answer: A
97) As applied to labor demand, the marginal approach to profit
a. is irrelevant
b. requires setting marginal cost equal to the wage rate
c. requires setting marginal revenue equal to the wage rate
d. says that a firm should increase employment if doing so adds more to revenue than it adds
to cost
e. says that a firm should decrease employment if doing so adds more to cost than it adds to
revenue
Answer: D

Test Bank for Microeconomics: Principles and Applications
Robert E. Hall, Marc Lieberman
9781111822569, 9781478405238, 9781478498056

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