Q: Suppose the marginal product of labor (MP) for a worker is 4 units, and the price (P) of the product is $500. What is the marginal revenue product (MRP) of labor for this worker?

$$ MRP = P \times MP = 500 \times 4 = 2000 $$

Question 1

In the labor market, equilibrium wage and employment are determined by the intersection of which two curves?

Accepted Answer

The labor supply curve and the labor demand curve

Question 2

Suppose the marginal product of labor (MP) for a worker is 4 units, and the price (P) of the product is $500. What is the marginal revenue product (MRP) of labor for this worker?

Accepted Answer

$$ MRP = P 	imes MP = 500 	imes 4 = 2000 $$

Question 3

If a firm finds that $$ MRP \u003e W  ($$marginal revenue product is greater than wage), what should the firm do to maximize profit?

Accepted Answer

Hire more workers

Question 4

Which of the following would cause the labor demand curve to shift to the right?

Accepted Answer

An increase in the price of the product being produced

Question 5

If immigration increases the supply of labor in a market, what is the most likely effect on equilibrium wage and employment?

Accepted Answer

Equilibrium wage decreases and equilibrium employment increases

Question 6

A backward-bending labor supply curve occurs when:

Accepted Answer

The income effect of a wage increase outweighs the substitution effect

Question 7

Which factor is most likely to explain why Major League Baseball players earn much more than college instructors?

Accepted Answer

The supply of skilled baseball players is much lower than the supply of college instructors

Question 8

If a new technology is a complement to labor, what happens to the demand for labor?

Accepted Answer

Demand for labor increases

Question 9

What is a compensating differential?

Accepted Answer

A higher wage that compensates workers for unpleasant or dangerous aspects of a job

Question 10

Suppose a firm is a monopsony in a labor market. What is the most likely outcome compared to a competitive labor market?

Accepted Answer

The firm will hire fewer workers at a lower wage

Question 11

Which equation represents the marginal revenue product of labor?

Accepted Answer

$$ MRP = P 	imes MP $$

Question 12

If a labor union successfully negotiates higher wages for its members, what is the most likely effect in the labor market?

Accepted Answer

Union workers will earn more than non-union workers, but fewer workers may be employed

Question 13

Which of the following is NOT a factor that shifts the market supply curve of labor?

Accepted Answer

Changes in technology

Question 14

If a firm discriminates against a group of workers and refuses to hire them, what happens to the wage for the remaining workers at that firm?

Accepted Answer

The wage increases due to a decrease in labor supply

Question 15

According to the marginal productivity theory of income distribution, how is income distributed in society?

Accepted Answer

Each person receives income according to the marginal revenue products of the factors of production they own

Question 16

Which effect explains why an increase in wage may cause some individuals to work less?

Accepted Answer

The income effect

Question 17

If the wage rate in an industry rises, what is the most likely effect on the quantity of labor supplied?

Accepted Answer

The quantity of labor supplied increases

Question 18

Which of the following is an example of economic discrimination?

Accepted Answer

Paying a person a lower wage based on an irrelevant characteristic like race or gender

Question 19

If a new technology is a substitute for labor, what is the most likely effect on the labor market?

Accepted Answer

Demand for labor decreases, leading to lower wages

Question 20

Which of the following best describes the effect of customer discrimination in the labor market?

Accepted Answer

It can increase profit for firms that cater to discriminatory preferences, perpetuating wage differentials

Labor Markets and Wage Determination: Microeconomics Study Notes

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