Q: Which formula correctly calculates the Marginal Revenue Product (MRP) of labor?

$$MRP = \text{Marginal Product} \times \text{Price of Output}$$

Q: A firm faces the following: Wage = $$20, Marginal Product of Labor = 2 units, Price of Output = 15. $$Should the firm hire another worker?

Yes, because $$MRP = 2 \times 15 = 30$$, which is greater than the wage.

Question 1

Which of the following best explains why the labor supply curve typically slopes upward?

Accepted Answer

Higher wages decrease the marginal benefit of leisure, encouraging more people to supply labor.

Question 2

A firm is considering hiring one more worker. The worker's marginal product is 5 units, and the price of output is $$10 per unit. If the wage rate is 40$$, should the firm hire the worker?

Accepted Answer

Yes, because the Marginal Revenue Product (MRP) is $50, which is greater than the wage.

Question 3

Which formula correctly calculates the Marginal Revenue Product (MRP) of labor?

Accepted Answer

$$MRP = 	ext{Marginal Product} 	imes 	ext{Price of Output}$$

Question 4

If a worker faces a wage increase, which effect describes the tendency to work more because leisure has become relatively more expensive?

Accepted Answer

Substitution effect

Question 5

Suppose a new technology increases worker productivity. What is the most likely impact on the labor demand curve?

Accepted Answer

The labor demand curve shifts to the right.

Question 6

Which of the following best describes equilibrium in the labor market?

Accepted Answer

The wage at which the quantity of labor supplied equals the quantity of labor demanded.

Question 7

A firm will continue to hire additional workers as long as:

Accepted Answer

$$MRP \u003e 	ext{Wage}$$

Question 8

If immigration increases the number of available workers, what is the likely effect on equilibrium wage and employment in the labor market?

Accepted Answer

Equilibrium wage falls and employment rises.

Question 9

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

Accepted Answer

Changes in worker preferences for leisure

Question 10

A worker decides to work fewer hours after a wage increase. Which effect is most likely responsible?

Accepted Answer

Income effect

Question 11

If the government increases taxes on labor income, what is the most likely impact on the labor supply curve?

Accepted Answer

The labor supply curve shifts to the left.

Question 12

Which of the following best describes the cost-benefit principle as applied to labor supply decisions?

Accepted Answer

Workers compare the marginal benefit of working to the marginal cost of leisure.

Question 13

Which of the following would most likely cause the labor supply curve to shift to the right?

Accepted Answer

An increase in immigration

Question 14

If the marginal product of labor decreases due to diminishing returns, what happens to the marginal revenue product (MRP) if the price of output remains constant?

Accepted Answer

MRP decreases.

Question 15

A firm faces the following: Wage = $$20, Marginal Product of Labor = 2 units, Price of Output = 15. $$Should the firm hire another worker?

Accepted Answer

Yes, because $$MRP = 2 	imes 15 = 30$$, which is greater than the wage.

Question 16

Which of the following is an example of a real-world event that could shift the labor demand curve?

Accepted Answer

A technological innovation increases worker productivity.

Question 17

If a firm hires workers until $$MRP = 	ext{Wage}$$, what is the economic rationale for this decision?

Accepted Answer

It maximizes the firm's profit from labor.

Question 18

Which of the following best describes the difference between extensive and intensive labor supply?

Accepted Answer

Extensive labor supply refers to how many people work; intensive refers to how many hours each worker supplies.

Question 19

If the labor market is not at equilibrium and the wage is above the equilibrium level, what is the likely outcome?

Accepted Answer

There will be a surplus of labor.

Labor Markets: Supply, Demand, and Equilibrium in Microeconomics

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