ECON 1P91 Lecture Notes - Lecture 12: Perfect Competition, Profit Maximization, Diminishing Returns
ECON 1P91 Full Course Notes
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A competitive firmâs short-run demand for labor will rise when the price of its product rises.
| True | |
| False |
As the wage rate rises, the marginal revenue product of labor increases.
| True | |
| False |
A competitive firmâs demand for labor always slopes down in the short-run, but may slope upwards or downwards in the long run.
| True | |
| False |
When labor an capital are complements in production, a higher wage will cause a firm to use more capital in the long run.
| True | |
| False |
If labor is a regressive factor, then a firmâs long-run demand for labor may or may not be downward sloping.
| True | |
| False |
The short-run demand curve for labor for a firm in any type of market for its output coincides with
| the upward-sloping portion of the marginal revenue product curve. | |
| the downward-sloping portion of the marginal revenue product curve. |
| the downward-sloping portion of the marginal product curve. | |
| the marginal labor cost curve. |
An increase in the price of labor will, in the short run, cause a competitive firmâs
| marginal cost to increase, the quantity it sells to decrease, and therefore reduce the quantity of labor demanded. | |
| price of its output to increase, leaving the quantity of labor demanded unchanged. |
| marginal revenue product of labor to decrease, and therefore reduce demand for labor. | |
| marginal revenue product of labor to increase, and therefore increase demand for labor. |
Which of the following would cause the firmâs short-run demand curve for labor to shift to the right?
| A decrease in the wage rate. | |
| An increase in the price of the firmâs product. |
| An increase in the rental rate paid to capital. | |
| A decrease in the amount of complementary capital available. |
If increased capital usage reduces the firmâs short-run demand for labor, then
| labor is a regressive factor. | |
| labor and capital are complements in production. |
| labor and capital are substitutes in production. | |
| labor is a Giffen factor. |
When is the law of demand violated for labor? That is, with regards to the law of labor demand, when does an increase in the wage not lead to a reduction in the quantity of labor demanded?
| Never. | |
| When the substitution and scale effects are in opposition, with the scale effect being the larger. |
| When labor is a regressive factor. | |
| When labor earns zero economic rent. |
If the wage rate rises, then the firmâs long-run marginal costs change, which in turn affects the firmâs output level and its employment of labor. This phenomenon is known as
| the substitution effect. | |
| the scale effect. |
| the regressive-factor effect. | |
| the factor-price effect. |
When will the scale effect of a wage increase cause a reduction in the quantity of labor demanded?
| Always. | |
| When labor is not a regressive factor. |
| When labor and capital are substitutes in production. | |
| When labor and capital are complements in production. |
Consider the usual case where a higher wage rate increases a firmsâ marginal costs. In this case, the industryâs demand curve for labor
| is more wage inelastic than the individual firmsâ demand curves would indicate. | |
| coincides with the horizontal sum of individual firmsâ demand curves. |
| contains only substitution effects but no scale effects. | |
| is horizontal at the going wage rate. |
To maximize profits, a monopolist will hire the quantity of labor at which marginal revenue product of labor
| is downward sloping and equal to the market wage rate. | |
| is downward sloping and equal to marginal labor cost. |
| minus marginal labor cost is maximized. | |
| is maximized. |
A firmâs revenue minus its factor payments equals
| zero. | |
| the profits or losses earned by the firm. |
| the quasi-rents earned by the factors of production. | |
| the firmâs total revenue. |
As the amount of labor used in production increases, total product
| increases at low levels of labor and decreases at higher levels of labor. | |
| increases at high levels of labor and decreases at low levels of labor. |
| always increases. | |
| always decreases. |
A profit-maximizing price taker will produce at a level where
| the wage equals the marginal product of labor. | |
| the marginal revenue product of labor equals the price of their output. |
| the wage rate equals the price of their output. | |
| the marginal revenue product of labor equals the wage rate. |
If the wage rate is $10 per hour and one worker can produce 2 units of output per hour, then the marginal cost of production is
| $5. | |
| $10. |
| $20. | |
| The answer cannot be determined from the information given. |
A firmâs long-run demand for labor is more wage-elastic than its short-run demand for labor.
| True | |
| False |
A monopsonistâs short-run demand curve for labor coincides with its marginal revenue product of labor curve.
| True | |
| False |
Workers will receive higher wages when an employer faces an upward-sloping supply curve for labor.
| True | |
| False |
The profit an owner receives is equivalent to the rent received for her entrepreneurial services.
| True | |
| False |
When high levels of labor are employed, total production tends to increase at a decreasing rate.
| True | |
| False |
The substitution effect on labor always decreases the quantity of labor demanded when the wage rate increases.
| True | |
| False |
A firmâs marginal revenue product of labor equals the marginal product of labor multiplied by the per-unit cost of labor.
| True | |
| False |
Tastes and preferences are relevant to individual choices for consumption but not relevant to choices for supplying labor.
| True | |
| False |
A higher wage will always cause a worker to increase the quantity of labor supplied.
| True | |
| False |
The substitution and income effects of a wage increase both cause consumption to rise.
| True | |
| False |
A workerâs labor supply may either rise or fall when nonlabor income increases, depending on whether the substitution effect or the income effect dominates.
| True | |
| False |
When an increase in marginal productivity increases workersâ nonlabor income, the effect on the quantity of labor supplied is ambiguous/uncertain.
| True | |
| False |
A technological improvement that is permanent is more likely to raise employment than one that is temporary.
| True | |
| False |
Other factors being constant, firms that provide on-the-job training to workers will tend to pay higher wages.
| True | |
| False |
If there is discrimination, employers engage in it a cost.
| True | |
| False | |
Human capital tends to increase over the course of a personâs life.
| True | |
| False |
In the indifference curve budget line model of labor supply,
| labor is measured along the horizontal axis and leisure is measured along the vertical axis. | |
| labor is measured along the horizontal axis and consumption is measured along the vertical axis. |
| consumption is measured along the horizontal axis and labor is measured along the vertical axis. | |
| consumption is measured along the horizontal axis and leisure is measured along the vertical axis. |
In the indifference curve budget line model of labor supply, the slope of the indifference curve is used to measure
| the wage rate. | |
| laborâs marginal product. |
| the workerâs nonlabor income. | |
| the marginal value of leisure. |
If a worker has chosen a quantity of labor where the marginal value of leisure exceeds the wage rate, she would be better off by
| choosing less leisure. | |
| providing fewer hours of labor. |
| providing more hours of labor. | |
| staying at this combination of labor and consumption. |
When there is an increase in the wage rate there will be
| both a substitution effect and an income effect. | |
| only a substitution effect. |
| only a substitution effect. | |
| either a substitution effect or an income effect. |
When the wage rate rises, the substitution effect leads a worker to
| increase consumption while the income effect leads to a decrease in consumption. | |
| decrease consumption while the income effect leads to an increase in consumption. |
| increase consumption, as does the income effect. | |
| substitution sleep for other leisure. |
Consider the indifference curve budget line model of labor supply, and assume consumption and leisure are both normal goods. A higher wage rate would result in
| more consumption and less leisure. | |
| a reduction in the workerâs marginal value of leisure. |
| reduced consumption if the income effect is larger than the substitution effect. | |
| increased labor only if the substitution effect outweighs the income effect. |
When the wage rate rises, a worker chooses to replace some leisure hours with work hours, even if he would remain equally well off. This phenomenon is known as
| compensating differential. | |
| the income effect. |
| the substitution effect. | |
| intertemporal substitution. |
Which of the following will shift a workerâs labor supply curve to the left?
| Higher nonlabor income. | |
| A lower wage rate, assuming the substitution effect dominates the income effect. |
| New machinery that substitutes for labor and lowers its marginal product. | |
| A decrease in the marginal value of leisure. |
Which of the following would cause a rightward shift in the labor demand curve?
| Manna from heaven. | |
| A rise in the wage rate. |
| A rise in workersâ marginal productivity. | |
| A decline in workersâ nonlabor incomes. |
When some jobs are inherently more risky or unpleasant than other jobs, different workers will be paid different wages because of
| differences in human capital. | |
| differing access to capital. |
| compensating differentials | |
| discrimination. |
Discrimination is difficult to measure empirically because
| it is hard to measure and control for differences in marginal productivity. | |
| data on racial and gender differences is rarely available. |
| discrimination is practiced by very few employers. | |
| economists find no significant wage differentials due to gender or race. |
Intertemporal substitution dictates that
| people will work less in periods of high productivity. | |
| people will spend more in periods of high productivity. |
| people will work more in periods of high productivity. | |
| people will spend less in periods of high productivity. |
A decrease in the wage rate causes the budget line to
| become flatter. | |
| become steeper. |
| shift upward. | |
| shift downward. |
An increase in the marginal productivity of labor will tend to
| shift the labor supply curve rightward if the change is temporary. | |
| result in an increase in employment if the change is temporary. |
| result in an increase in employment if the change is permanent. | |
| all of the above. |
A downward shift in a workerâs budget line is a result of
| an increase in the wage rate. | |
| a decrease in the wage rate. |
| an increase in nonlabor income. | |
| a decrease in nonlabor income |
One deficiency of the labor-leisure indifference curve analysis is that because indifference curves are always tangent to the workerâs budget line, the model cannot explain why some people choose not to work.
| True | |
| False |
