EC 110 Lecture Notes - Lecture 12: Human Capital, Lorenz Curve, Marginal Revenue

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silvercicada472

4 Jun 2018

School

University of Alabama

Department

Economics

Course

EC 110

Professor

Kent Zirlott

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Chapter 13: Resource Markets with Applications to Labor

1. Important Concepts

1. Marginal Revenue Product (MRP)

1. A downward sloping demand curve that tells the firm hiring (ex. labor)

what that resource contributes to the revenue of the firm at the margin of

each additional unit

2. Equation:

1. MRPL = MPPL x MRX

2. MRX is PX in perfectly competitive product markets

3. x is the product produced

2. Marginal Factor Cost (MFC)

1. The cost of each additional unit of resource utilized by the firm

3. Profit Maximization

1. More of the resource should be added until MRP = MFC

2. For more than one resource:

1. MRPL = MRPK … MPPN = 1

MFCL MFCK MFCN

2. L – labor

4. K – capital

5. wage rate can substitute for MFC in a perfectly competitive market

4. Cost Minimization

1. Criterion:

1. MPPL = MPPK … MPPN

MFCL MFCK MFCN

2. wage rate can substitute for MFC in a perfectly competitive market

5. Derived Demand

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Question 1

A firm should hire workers up to the point where

Question 1 options:

	MP = P.
	MFC = P.
	MFC = MRP.
	MP = MRP.

Question 2

If the additional revenue from hiring an additional worker equals the additional costs from hiring the extra worker, then we know that

Question 2 options:

	MFC/MPP_L = wage.
	MFC/MRP_L = 1.
	MFC = MPP_L.
	MRP_L/P = MFC.

Question 3

A firm that maximizes profits also

Question 3 options:

	pays input prices lower than other firms do.
	cuts corners in production processes so that its products are made too cheaply.
	is inefficient.
	uses the least-cost combination of resources.

Question 4

The demand curve for labor slopes down because

Question 4 options:

	firms value less efficient workers less than they value more efficient workers.
	firms must lower prices to sell the additional units of its product that the extra workers produce.
	of profit maximizing behavior.
	of the law of diminishing marginal product.

Question 5

If MFC > MRP_L, the firm should

Question 5 options:

	get rid of some capital.
	reduce the number of workers.
	lower wages.
	hire more workers.

Question 6

Which of the following will not lead to an increase in the demand for labor for a firm producing automobiles?

Question 6 options:

	A decrease in labor productivity.
	A decrease in the price of automobiles.
	A decrease in the price of robots that are used to solder parts of the car together.
	An increase in the demand for automobiles.

Question 7

The marginal revenue product gives

Question 7 options:

	the additions to total cost when an additional unit of a variable input is hired.
	the additional revenue obtained when an additional unit of a variable input is hired.
	the change in total product for an additional unit of a variable input.
	the amount that other inputs must increase by when labor increase by one unit.

Question 8

The monopolist's input demand curve is the

Question 8 options:

	marginal physical product curve.
	marginal revenue product curve.
	marginal revenue curve.
	marginal factor cost.

Question 9

An increase in product price implies that

Question 9 options:

	the firm's demand for labor increases.
	the firm's demand for labor decreases.
	the wage rate the firm pays will increase.
	the firm's marginal factor cost will increase.

Question 10

Which of the following will not lead to a change in the demand for labor?

Question 10 options:

	A change in the supply of labor.
	A change in demand for the final good.
	A change in the price of a substitute input.
	A change in labor productivity.

skyox48

1. A firm's supply curve for labor: A) is vertical for a firm in perfect competition. B) is the same thing as the MRPL for a firm in perfect competition. C) and the firm's MRPL will determine the profit-maximizing quantity of labor hired by the firm in perfect competition. D) is the same as its demand curve for labor. 2. The wage paid by a firm buying labor in a perfectly competitive market: A) is greater than the market wage. B) is less than the market wage. C) is equal to the market wage. D) increases with the quantity of labor hired. 3. A lower wage: A) has an income effect but not a substitution effect on the quantity of labor supplied. B) means a higher income for any given level of labor supplied. C) has an income effect which is always negative with respect to the quantity of labor supplied. D) has an income effect which is always positive with respect to the quantity of labor supplied. 4. In perfect competition where P is the price of output: A) MRPL = MPL x P. B) MRPL/MPL = PL. C) MRP/P = MPK. D) MRPL x P = MPL. 5. The net present value (NPV) of an activity or project is: A) equal to the future value of all the revenues minus the present value of all the costs associated with it. B) equal to the present value of all the revenues minus the present values of all the costs associated with it. C) equal to the present value of all the revenues minus the future values of all the costs associated with it. D) equal to the future values of all the revenues minus the future values of all the costs associated with it. 6. The condition for hiring factors of production- that is, where MFC = MRP- is analogous to the profit-maximizing output condition: A) TR = TC. B) MR = MC. C) AR = ATC. D) P = MR. 7. A firm should use less of a factor of production if: A) MRP > MFC. B) MRP = MFC C) (MR x MP) < MFC D) MRP < (MP x MR)

amaranthox522

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.

EC 110 Lecture Notes - Lecture 12: Human Capital, Lorenz Curve, Marginal Revenue

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