Question 1

Suppose a firm is deciding how many workers to hire. The wage rate is $$20$$ per hour, and the Marginal Revenue Product (MRP) of the last worker hired is $$20. $$According to the labor demand theory, what should the firm do?

Accepted Answer

Maintain the current number of workers, since MRP equals the wage rate.

Question 2

On a labor market graph, the vertical axis typically represents which variable?

Accepted Answer

Wage

Question 3

A downward-sloping curve labeled 'MRP' on a graph most likely represents:

Accepted Answer

The labor demand curve

Question 4

If a worker faces a higher wage and chooses to work fewer hours, which effect is dominating?

Accepted Answer

Income effect

Question 5

Which of the following best describes the relationship between Marginal Revenue Product (MRP) and wage in a competitive labor market?

Accepted Answer

$$MRP = Wage$$

Question 6

A wage distribution bar graph shows that the 90th percentile wage is $$60$$ and the 10th percentile wage is $$15. $$What does this indicate about wage inequality?

Accepted Answer

Wage inequality is high.

Question 7

On an individual labor supply graph, why might the supply curve bend backward at high wage levels?

Accepted Answer

Because the income effect dominates, leading to less work.

Question 8

Which of the following is NOT typically shown on a market power graph?

Accepted Answer

Labor supply curve

Question 9

A monopolist sets output where $$MR = MC. If $$the demand curve is above this point, what does the vertical distance between the demand and MR curve represent?

Accepted Answer

The markup due to market power

Question 10

If a firm uses a pricing strategy that involves separate demand curves for different customer groups, what is this called?

Accepted Answer

Price discrimination

Question 11

Suppose a company bundles two products together at a single price, even though customers value them differently. What is the economic rationale for this strategy?

Accepted Answer

To extract more total willingness to pay from customers

Question 12

On a wage distribution bar graph, what does a large gap between the 10th and 90th percentiles suggest?

Accepted Answer

High wage inequality

Question 13

If a labor market graph shows a downward-sloping demand curve and an upward-sloping supply curve, what does the intersection represent?

Accepted Answer

The equilibrium wage and quantity of labor

Question 14

A firm observes that the marginal product of labor (MPL) is decreasing as more workers are hired. What economic principle does this illustrate?

Accepted Answer

Diminishing marginal product

Question 15

In a market power graph, why is the Marginal Revenue (MR) curve always below the demand curve?

Accepted Answer

Because the firm must lower price to sell additional units

Question 16

If a wage distribution graph shows that the richest 20% receive 50% of all income, what does this imply about income inequality?

Accepted Answer

There is significant income inequality

Question 17

A firm faces the following labor market: Wage = $$25$$, MRP = $$30$$ for the next worker, and MRP = $$20$$ for one more worker. How many workers should the firm hire?

Accepted Answer

Hire until MRP drops below $$25$$

Question 18

Which of the following is a key feature of the hurdle method in pricing strategy graphs?

Accepted Answer

Offering discounts to customers who overcome a hurdle

Question 19

On a market power graph, where should a firm set its output to maximize profit?

Accepted Answer

Where $$MR = MC$$

Question 20

If a labor supply curve bends backward at high wages, what does this suggest about worker preferences?

Accepted Answer

Workers value leisure more as their income increases.

Microeconomics Graphs and Curve Identification Study Guide

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