Q: A firm faces a wage rate of $$20 and the marginal product of the last worker hired is 1.5 units. If the output price is 10$$, should the firm hire more workers?

No, because $$MRPL = 1.5 \times 10 = 15 \u003c 20$$, so the firm should hire fewer workers.

Question 1

Why is the demand for labor described as a derived demand?

Accepted Answer

Because it is derived from the demand for products that use labor in the production process.

Question 2

The marginal revenue product of labor (MRPL) for a competitive seller is given by which formula?

Accepted Answer

$$MRPL = MP_L 	imes P$$

Question 3

For a perfectly competitive seller, the marginal revenue product of labor is equal to:

Accepted Answer

The change in total revenue that results from hiring another worker.

Question 4

Refer to the provided graph. If the wage rate is $40, how many workers should Dale hire to maximize profit?

Accepted Answer

3 units

Question 5

Suppose the market price of doilies rises from $$2 to 3. $$What happens to the marginal revenue product of labor curve shown in the graph?

Accepted Answer

The curve shifts to the right.

Question 6

A competitive firm pays a wage of $$12 per hour and sells its product at 3 $$per unit. If the last worker hired increases output by 3 units per hour, what should the firm do to maximize profits?

Accepted Answer

Lay off some of its workers.

Question 7

A decrease in the wage rate will cause:

Accepted Answer

An increase in the quantity of labor demanded.

Question 8

Which of the following could cause an increase in a perfectly competitive firm's demand for labor?

Accepted Answer

An increase in the market demand for the firm's product.

Question 9

All of the following will shift the labor supply curve except:

Accepted Answer

An increase in the wage rate.

Question 10

If Alan Shaw reduces his work hours when his salary increases, what does this imply?

Accepted Answer

The income effect of his salary increase dominates the substitution effect.

Question 11

In the market for pilots, what is likely to happen to the equilibrium wage and quantity of pilots if the government enforces a lower mandatory retirement age?

Accepted Answer

The equilibrium wage rises and the equilibrium quantity of pilots falls.

Question 12

What are compensating differentials?

Accepted Answer

Higher wages that compensate workers for unpleasant aspects of a job.

Question 13

Suppose a new technology increases the marginal product of labor in a factory. What will happen to the marginal revenue product of labor (MRPL) curve?

Accepted Answer

The MRPL curve will shift to the right.

Question 14

If the price of the output produced by labor falls, what happens to the demand for labor?

Accepted Answer

The demand for labor decreases.

Question 15

A firm faces a wage rate of $$20 and the marginal product of the last worker hired is 1.5 units. If the output price is 10$$, should the firm hire more workers?

Accepted Answer

No, because $$MRPL = 1.5 	imes 10 = 15 \u003c 20$$, so the firm should hire fewer workers.

Question 16

Which of the following best describes the substitution effect of a wage increase?

Accepted Answer

Workers supply more labor because the opportunity cost of leisure increases.

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