Question 1

Suppose a firm’s marginal product of labour (MPN) is given by $$MPN = 100 - 2N$$, where $$N is $$the number of workers. If the real wage $$w is 40$$, how many workers will the profit-maximizing firm hire?

Accepted Answer

30

Question 2

In the standard production model, why is the marginal product of labour (MPN) curve downward sloping?

Accepted Answer

Because of diminishing marginal returns to labour

Question 3

Given the equation for marginal product of labour $$MPN = a - bN$$, what happens to the labour demand curve if $$a$$ increases?

Accepted Answer

The labour demand curve shifts upward

Question 4

Refer to the first graph. At employment level $$N_1$$, what should a profit-maximizing firm do?

Accepted Answer

Hire more workers

Question 5

If the nominal wage is $$W$$ and the price level is $$P$$, what is the real wage?

Accepted Answer

$$w = \frac{W}{P}$$

Question 6

What is the effect of an increase in total factor productivity (TFP) on the marginal product of labour (MPN) curve, as shown in the second graph?

Accepted Answer

The MPN curve shifts upward

Question 7

Which of the following best describes the relationship between technology and labour in the standard production model?

Accepted Answer

Technology and labour are complements

Question 8

Suppose the marginal revenue product of labour (MRPN) is given by $$MRPN = P 	imes MPN. If $$the price of output $$P$$ doubles but $$MPN$$ stays the same, what happens to $$MRPN$$?

Accepted Answer

It doubles

Question 9

In the hot dog parable, after a technological improvement in wiener production, what happens if the economy reallocates workers to maximize hot dog production?

Accepted Answer

Total hot dog production increases

Question 10

Which of the following is a likely effect of skill-biased technological change?

Accepted Answer

Wage inequality increases between skilled and unskilled workers

Question 11

If a firm is currently employing $$N_2$$ workers as shown in the first graph, what should it do to maximize profit?

Accepted Answer

Reduce the size of the labour force

Question 12

Which of the following best explains why technological progress does not necessarily lead to higher unemployment in the long run?

Accepted Answer

Labour is reallocated to other sectors, increasing total output

Question 13

If the aggregate labour demand curve shifts outward, what is the most likely cause?

Accepted Answer

An increase in total factor productivity (TFP)

Question 14

Which of the following statements about wage inequality in Canada between 1980 and 2000 is correct?

Accepted Answer

Wages of the most skilled grew while those of the least skilled stagnated

Question 15

If $$MPN = 80 - 4N$$ and the real wage $$w = 40$$, what is the optimal number of workers $$N^*$$ the firm should hire?

Accepted Answer

10

Question 16

Which of the following is NOT an assumption of the short-run labour demand model?

Accepted Answer

The capital stock is variable

Question 17

What is the main reason for the recent decline in employment in routine jobs in the US?

Accepted Answer

Skill-biased technological change

Question 18

If a firm’s marginal product of labour is always greater than the real wage, what should the firm do?

Accepted Answer

Hire more workers

Question 19

Which of the following best describes the effect of computerization on the labour market?

Accepted Answer

It increases the productivity of skilled workers more than unskilled workers

Question 20

If the marginal product of labour is $$MPN = 60 - N$$ and the real wage is $$w = 20$$, what is the labour demand $$N_D$$?

Accepted Answer

40

Labour Demand in Macroeconomics: Theory, Technological Change, and Wage Inequality

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