ECON 1 Lecture 14: ECON1: Lecture 14 (11/15/16)

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goldsheep474

17 Nov 2016

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Define production function - shows the relationship between the quantity of inputs used to produce a good and the quantity of output of that good. It can be represented by a table, equation, or a graph. He can hire as many workers as he wants. If jack hires one more worker, his output rises by the marginal product of labor. Define: the marginal product of any input is the increase in output arising from an additional unit. Various measures of cost of that input, holding all other inputs constant. Q = change in output, l = change in labor. His costs rise by the wage he pays the worker. Comparing them helps jack decide whether he should hire the worker. Farmer jack"s output rises by a smaller and smaller amount for each additional worker. As jack adds workers, the average worker has less land to work with and will be less productive.

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Mortley inc., a small firm that manufactures good A, is targeting a new segment of the market. During a meeting, the managers analyze the following production data provided by the operations department. The table given below shows the total output produced by the 12 workers at the plant.

Units of Labor Total Product

1 5

2 15

3 40

4 85

5 145

6 225

7 315

8 390

9 450

10 500

11 535

12 555

Assuming that labour is the only variable input, which of the following can most reasonably be inferred from the information given in the table above?

a. The firm's average cost rises if the firm hires more than five workers.

b. Although marginal product begins to decline when the firm hires the fifth worker, the average product continues to increase.

c. To prevent diminishing marginal returns from setting in the firm must not hire more than ten workers.

d. The marginal product of the sixth worker is equal to the average product.

e. The firm's marginal cost is at its minimum when it hires the seventh worker.

I guessed "c" and was wrong. I have no idea how to figure this out, but my idea was to divide the total product amounts by the units of labour, and the numbers started decreasing after 10. Anyway, please explain this like I'm five.

amethysthare825

Multiple Choice:

1. If 8 percent increase in the price of one good results in an increase of 4 percent in the quantity

demanded of another good, then it can be concluded that the two goods are:

a) complements.

b) substitutes.

c) independent.

d) normal.

2. The law of diminishing marginal utility explains why:

a) supply curves are upsloping.

b) demand curves are downsloping.

c) real income of the consumer rises when the price of a commodity falls.

d) substitution effect is always higher than income effect mentioned in c) above.

3. A necessary and sufficient condition for a rational consumer to be in equilibrium or at that position where he

maximizes utility is that the marginal utility:

a) of all products he consumes is zero.

b) of all products he consumes is positive.

c) is the same for all products.

d) per last dollar is the same for products consumed.

4. Diminishing returns are observed in increases of production output by adding a variable input to a fixed of

inputs because:

a) the ability or quality of the variable input added decreases are more is used.

b) the firm must lower the price of its product when it produces more units of output.

c) the per unit cost it must pay for the variable input increases as more of the input is used.

d) as more variable input is used, the amount of fixed input per variable input decreases.

5. A necessary and sufficient condition for a rational consumer to be in equilibrium or at that position where he

maximizes utility as he spends the last dollar of his budget is that the marginal utility:

e) of all products he consumes is zero.

f) of all products he consumes is positive.

g) is the same for all products.

h) per dollar for all products is the same.

6. The short run marginal cost (MC) curve eventually rises because of:

a) diseconomies of scale.

b) decreasing per unit fixed costs.

c) diminishing marginal returns.

d) increasing marginal productivity of the variable input.

7. Other things being equal, if the prices of a firm

peardeer710

(1)

Which of the following employment situations would most closely approximate a monopsony?

	a steel mill in Yokahama, Japan.
	a fast food restaurant in a big city.
	a farmer hiring seasonal workers.
	a large factory in a small town.

(2)

If a monopsonist hires labor, it will choose to hire that quantity at which ___________ and pay a wage rate that is _______________.

	MR = MC; equal to the MRP curve.
	the supply curve intersect the MRP; less than MFC
	MRP = MFC; less than MRP
	the supply curve intersect the MRP; equal to MRP

(3)

Suppose a firm employs both labor and capital. If the ratio of marginal product to price of labor is 50/$10 and the ratio of marginal product of capital to price of capital is 60/$12, the firm should

	maintain the current combination capital and labor.
	buy more labor and less capital because labor is cheaper.
	buy more capital and less labor because capital is cheaper.
	buy more capital because it is more productive than labor.

(4)

Derived demand for labor means that when a firm hires labor, it has to derive its demand

	mathematically.
	based on the labor supply.
	from the demand for the product that the labor produces.
	based on the minimum wage.

(5)

For a firm in perfect competition, the value of the marginal product is

	the value of an additional unit of output measured in terms of additional cost.
	the total value of the total output output divided by the total output.
	additional revenue minus additional cost as a result of an increase in output.
	the price of the product multiplied by the additional output resulting from an additional unit employed.

(6)

A firm that is perfectly competitive will hire labor as long as which of the following is true?

	VMP < W.
	VMP > W.
	MC > MR.
	VMP < MRP.

(7)

The VMP curve slopes downward at some point because

	congestion in the work place lowers marginal product.
	teamwork in the work place increases marginal product.
	the firm hires less labor as the wage rate rises.
	labor supplies less amounts of labor as the wage rate falls.

(8)

Which of the following would not be considered capital in a business?

	The employees
	The factory
	A machine
	Tools

(9)

The increase in the value of a firmâs capital as it increases in age and use is depreciation.

	true
	false

(10)

On a labor market graph, a firmâs demand for labor is

	the wage rate.
	the marginal revenue product curve.
	the marginal product curve.
	indeterminant.

(11)

Why may a householdâs labor supply curve bend backwards at some wage rate?

	The household substitutes labor for leisure.
	The household substitutes leisure for labor.
	Employers demand fewer employees at higher wage rates.
	Households want to supply more labor as the wage rate decreases to maintain incomes.

(12)

The substitution effect is usually stronger than the income effect, thus creating an upward sloping labor supply curve.

	true
	false

(13)

An inelastic demand for labor means that an increase in the wage rate causes a less than proportionate decrease in the quantity of labor demanded.

	true
	false

(14)

Marginal revenue product is

	marginal revenue divided by marginal product.
	marginal revenue times marginal product.
	marginal product minus marginal revenue.
	marginal product plus marginal revenue.

(15)

A firm obeys the least-cost rule by equating the ratios of ___________________ to the ________________ price.

	marginal product; product
	marginal product; factor
	marginal cost; product
	marginal revenue; product

(16)

Suppose the MP of the last unit of capital hired equals 12 and the MP of the last unit of labor hired equals 16.If the price of capital is $8 per unit and the price of labor is $8 per unit, then the firm

	is maximizing its costs with this combination of factors.
	is maximizing its profits with this combination of factors.
	should hire more labor and less capital in order to minimize its costs.
	should hire more capital and less labor in order to minimize its costs.

(17)

For a firm to minimize its costs with more than one factor of production, for every factor, the ratio of the

	marginal product to factor price must be equal.
	marginal revenue product to factor price must be equal.
	marginal revenue product to output must be equal.
	marginal cost to factor price must be equal.

(18)

A monopsony is a firm that, in a specific market, is the only

	seller of a product.
	buyer of a product.
	seller of a factor of production.
	buyer of a factor of production.

(19)

Which of the following businesses would most closely approximate a monopsonist?

	A steel mill in Pittsburgh
	A fast food franchise in a large city
	A large manufacturer in a rural county
	A rancher who hires ranch help

(20)

A firm has the opportunity to buy a machine that costs $2500. It has found the present value of the income generated by the machine to be $2487. It should purchase the machine.

	true
	false

(21)

An increase in the market rate of interest causes

	a leftward shift in the demand for capital curve.
	a rightward shift in the demand for capital curve.
	a movement up the demand for capital curve.
	a movement down the demand for capital curve.

(22)

The characteristic of capital that makes it different from labor is its

	high cost.
	durability.
	rotunda.
	relatively low cost compared to labor.

(23)

The present value of $1000 one year in the future at a 10 percent interest rate is approximately

	$870.
	$909.
	$1000.
	$1909.

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ECON 1 Lecture 14: ECON1: Lecture 14 (11/15/16)

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