ECO101H1 Lecture Notes - Wvmp, Perfect Competition, W. M. Keck Observatory

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Topic 12 j markets for factors of production (jan 10th) Outline: the factors of production, derived demand for labor: an example; Demand for labor = mrp of labor. P=mc & w=vmp: interdependence of product and factor markets, workers are paid their mrp/vmp. Insight: demand for factors is a derived demand: (vmp) value of marginal product = (mrp) marginal revenue product. - economic explanation of how compensation is determined; e. g. firm produces widgets (perfect competition); Labor is variable factors (principle of dmp applies); Therefore assumed short-term, and fixed costs exist; - firm will not hire a worker unless his vmp is at least equal to the wage rate; e. g. if w=, firm will not hire the 3rd worker since this worker is paid only to contribute . - therefore since w=, the firm will hire three workers: profit-maximizing behavior of competitive firm;

Related Questions

Derived demand is
A. consumer demand for goods and services.
B. based on the prices of factors of production.
C. the demand for factors of production directly by business.
D. the demand for factors of production dependent on consumer demand for output.
E. calculated for firms.

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Assume that the product price is $2 per unit, the price of thefactor of production is $40 per unit, and 8 units are being hired.Profit can be maximized by hiring _______ unit(s).
Answer
A. 2 more
B. 1 more
C. 1 fewer
D. 3 fewer

If a firm is using a factor of production from a perfectlycompetitive market such that MFC > MRP, then profit:
Answer
A. can be increased by decreasing the factor price.
B. is maximized.
C. can be increased by using more of the factor.
D. can be increased by using less of the factor.

The amount a factor adds to a firm's total cost per period iscalled:
Answer
A. marginal factor cost.
B. marginal fixed cost.
C. marginal cost.
D. MFR .

Which of the following statements is true?
Answer
A. Marginal product is the change in total revenue divided by a oneunit change in a factor.
B. Marginal factor cost is equal to average total cost.
C. Marginal revenue product is marginal product times marginalrevenue.
D. Marginal revenue is the change in total output divided by thechange in output

Given an increase in the demand for labor, the more the supply oflabor rises:
Answer
A. the fewer the number of workers employed.
B. the greater the increase in wages.
C. the greater the increase in workers employed at the originalwage rate.
D. the less the increase in wages and the greater the number ofworkers employed.

Which of the following statements is true?
Answer
A. The market demand curve for labor is found by adding the supplycurves for labor of individual firms.
B. The market demand for labor will change as a result of a changein the use of a complementary factor or a substitute factor.
C. The market demand curve for labor is vertical at theprofit-maximizing wage.
D. A firm's demand for labor is the upward-sloping portion of theMRP curve for labor.

If marginal product is _______ , marginal revenue product must be_______ .
Answer
A. rising; falling
B. rising; zero
C. falling; rising
D. falling; falling

If a firm is using a factor of production from a perfectlycompetitive market such that MFC < MRP, then profit:
Answer
A. can be increased by using more of the factor.
B. can be increased by increasing the factor price.
C. is maximized.
D. can be increased by using less of the factor.

Which of the following statements is true?
Answer
A. Leisure is a normal good.
B. The demand for leisure is perfectly inelastic.
C. All other things unchanged, an increase in income will decreasethe demand for leisure.
D. Leisure is an inferior good.

An increase in the demand for a firm's product will increase the:

a. Value of the marginal product but not the firm's demand for labor.

b. Firm's demand for labor but not the value of the marginal product.

c. Marginal revenue product but not the firm's demand for labor.

d. Marginal revenue product and the firm's demand for labor.

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ECO101H1 Lecture Notes - Wvmp, Perfect Competition, W. M. Keck Observatory

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