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.

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