🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
HomeClass Notes1,200,000US530,000

ECO-4 Lecture Notes - Lecture 18: Marginal Product, Opportunity Cost, Diminishing Returns

9 views2 pages
School
RCC
Department
Economics
Course
ECO-4
Professor
hamilton

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

We can describe the relationship between output & quantity of labor employed by using concepts of: Total product (items per day) = maximum output that a given quantity of labor can produce. Each increase in employment = increase in total product. Marginal product (items per additional worker) = increase in total product that results from a one-unit increase in quantity of labor employed, with all other inputs remaining the same. Also measured by slope of total product curve (change in y/change in x) Height of curve measures slope of total product curve @ a point. Occur when marginal product of an additional worker exceeds the marginal product of the previous worker. Arise from increased specialization & division of labor in the process. Diminishing marginal returns : occur when marginal product of an additional worker is less than the marginal product of the previous worker.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related textbook solutions

Principles of Economics
2nd Edition, 2017
Openstax
ISBN: 9781947172364
Principles of Macroeconomics
2 Edition,
Openstax
ISBN: 9781947172388
Principles of Microeconomics
2 Edition,
Openstax
ISBN: 9781947172340

Related Documents

ECO-4 Lecture Notes - Lecture 4: Marginal Utility, Allocative Efficiency, Marginal Cost
lemonwater-buffalo623
ECO-4 Lecture Notes - Lecture 13: Price Floor, Deadweight Loss, Demand Curve
lemonwater-buffalo623
ECO-4 Lecture 24: Introductory_Economics_24
lemonwater-buffalo623

Related Questions

1. The slope of the total product curve measures

a. the marginal rate of technical substitution.

b. marginal product.

c. average product.

d. the maximum average product.

e. minimum product.

2. The Law of Diminishing Returns to a variable input (such as labor) assumes that

a. there is at least one fixed input.

b. all inputs are changed by the same percentage.

c. the firm is operating in the short run.

d. all inputs are held constant.

e. a and c.

3. An isoquant curve identifies

a. the maximum output possible, given a fixed budget.

b. the different combinations of goods the can be produced, given fixed amounts of inputs.

c. the different combinations of inputs that can be used to produce a fixed rate of output.

d. none of the above.

4. The ratio of total productivity to the total quantity of a variable input being used in production is

a. equal to marginal physical productivity of the input.

b. constant as employment levels of the input vary.

c. equal to average physical productivity of the input.

d. equal to the marginal rate of technical substitution.

The law of eventually diminishing marginal returns: (Points : 1)

a. states that each and every increase in the amount of the variable factor employed in the production process will yield diminishing marginal returns.
b. is a mathematical theorem that can be logically proved or disproved
c. is the rate at which one input may be substituted for another input in the production process
d. None of the above

The marginal product is defined as: (Points : 1)
a. the ratio of total output to the amount of the variable input used in producing the output
b. the incremental change in total output that can be produced by the use of one more unit of the variable input in the production process
c. the percentage change in output resulting from a given percentage change in the amount of the variable input X employed in the production process with Y
d. None of the above

The rate at which one input X may be substituted for another input Y in a production process, while total output remains constant, is: (Points : 1)
a. the slope of the isoquant curve
b. the marginal rate of technical substitution

c. equal to MPx/MPy


d. all of the above
e. none of the above

Marginal revenue product is: (Points : 1)
a. defined as the amount that an additional unit of the variable input adds to the total revenue
b. equal to the marginal factor cost of the variable factor times the marginal revenue resulting from the increase in output obtained
c. equal to the marginal product of the variable factor times the marginal product resulting from the increase in output obtained
d. a and b
e. a and c

Marginal factor cost is defined as the amount that an additional unit of the variable unit of the variable input adds to ____________. (Points : 1)
a. marginal cost
b. variable cost
c. marginal rate of technical substitution
d. total cost
e. none of the above

In the Cobb-Douglas production function Q=aL^?1.K^?2 ______________. (Points : 1)
a. the marginal product of labor (L) is equal to ?1
b. the average product of labor (L) is equal to ?2
c. if the amount of labor input (L) is increased by 1 percent, then output will increase by ?1 percent
d. a and b
e. a and c

The short-run cost function is: (Points : 1)
a. where all inputs to the production process are available
b. relevant to decisions in which one or more inputs to the production process are fixed
c. not relevant to optimal pricing and production output decision facilities
d. crucial in making optimal investment decisions in new production facilities
e. none of the above

Theoretically, in a long-run cost function: (Points : 1)
a. all inputs are fixed
b. all inputs are considered variable
c. some inputs are always fixed
d. capital and labor are always combined in fixed proportions

A linear total cost function implies that: (Points : 1)
a. marginal costs are constant as output increases
b. average total costs are continually decreasing as output increases
c. a and b
d. none of the above

A competitive firm’s 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 firm’s 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 firm’s 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 firm’s

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 firm’s short-run demand curve for labor to shift to the right?

A decrease in the wage rate.

An increase in the price of the firm’s 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 firm’s 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 firm’s long-run marginal costs change, which in turn affects the firm’s 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 firms’ marginal costs. In this case, the industry’s demand curve for labor

is more wage inelastic than the individual firms’ demand curves would indicate.

coincides with the horizontal sum of individual firms’ 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 firm’s 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 firm’s 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 firm’s long-run demand for labor is more wage-elastic than its short-run demand for labor.

True

False

A monopsonist’s 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 firm’s 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 worker’s 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 workers’ 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 person’s 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.

labor’s marginal product.

the worker’s 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 worker’s 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 worker’s 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 workers’ marginal productivity.

A decline in workers’ 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 worker’s 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 worker’s budget line, the model cannot explain why some people choose not to work.

True

False