ECON-1020 Chapter Notes - Chapter 11: Marginal Product, Marginal Utility, Marginal Cost

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brownmule668

3 Feb 2020

School

Vanderbilt University

Department

Economics

Course

ECON-1020

Professor

Heather Luea

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Document Summary

Key ideas: the three main factors of production are labor, physical capital, and land, the supply of labor is determined by trading off the marginal benefit from labor given by earnings. In addition to labor, a producer must derive the demand for physical capital and land to achieve its production objectives. Firms are not the suppliers in this situation; they are the buyers/demanders of labor. In chapter 6, a company choose the total quantity of production in order to maximize profits, and we saw that this led to the condition: expand production until marginal cost = price. In this chapter, we see that the firm maximizes profits by optimally choosing its labor by expanding its workforce until the marginal product of labor x price = vmpl = wage. Labor demand shifts: two important factors, price of the good that the firm is producing, technology of the firm.

Related Questions

(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.

coffeemouse295

Can I get answers about these questions??

These questions are about Chapter 16-22 in Principles of Microecnomics sixth editon.

Monopolistic competition

Â· What makes a market monopolistically competitive?

Â· How do monopolistically competitive firms decide how much to produce and what price to set?

Â· How to monopolistically competitive firms make short-run and long-run choices?

Â· What is the role of advertising?

Oligopoly and Game Theory

Â· What is the prisonerÃ¢â¬â¢s dilemma and what are some applications?

Â· What is collusion and why is it difficult? What are some things that can make it harder or easier to collude?

Â· What is a dominant strategy?

Â· How can you find a Nash equilibrium in a game where a player has a dominant strategy?

Markets for Factors of Production

Â· How do profit maximizing firms decide how much of a factor of production (such as labor) to use? In other words what is the demand for factors of production?

Â· What changes the demand for factors of production?

Â· What determines the supply for labor? Supply for other factors of production?

Â· How are the rental prices and wages determined in a competitive market for factors of production?

Earnings and Discrimination

Â· What are some reasons why different people have different labor earnings?

Â· What are some difficulties in measuring discrimination?

Â· Why might firms that discriminate have difficulty competing?

Â· Why might a firm find it profitable to discriminate?

Income Inequality and Poverty

Â· What are some political philosophies regarding what the government should do to decrease poverty or income inequality?

Â· What are some policies that can reduce poverty? What are the strengths and weaknesses of these policies?

Consumer Choice

Â· What is the consumers budget constraint?

Â· How does a consumer choose how much of different goods to consume?

Â· What are the income and substitution effects?

Â· How does the demand curve relate to the consumer choice problem?

Â· How does the consumer choice problem relate to labor supply and borrowing/lending behavior?

Asymmetric Information and Healthcare

Â· What is moral hazard?

Â· What is adverse selection?

Â· How do these two concepts relate to the market for insurance and healthcare?

Â· How do insurance companies try to deal with adverse selection and moral hazard?

violetmammoth282

1. Which of the following groups of countries are all advanced economies?

		Hong Kong, Japan, France, and the United Kingdom
		Italy, the United States, China, and Russia
		Singapore, Russia, France, and Chad
		Australia, Brazil, and the United States

QUESTION 2

1. The most people live in ________ economies and the fewest people live in ________ economies.

		developing; emerging market
		advanced; emerging market
		emerging market; developing
		advanced; developing

QUESTION 3

1. Households and firms in the U.S. economy interact with those in the rest of the world in the ________ market and the ________ market.

		goods; financial
		government; goods
		goods; factor
		financial; factor

QUESTION 4

1. As a factor of production, oil reserves are counted as

		labor.
		capital.
		entrepreneurship.
		land.

QUESTION 5

1. ________ the owners of the factors of production, while ________ what amounts of those factors to hire.

		Households are; the government determines
		Firms are; households that determine
		The government is; firms determine
		Households are; firms that determine

QUESTION 6

1. The emerging market economies are

		the nations that are currently agricultural in nature.
		most of the nations of Western Europe.
		the largest grouping including the nations of China and India.
		in the transition from state-owned production to free markets.

QUESTION 7

1. In the United States, the productive factor that, as a group, receives the largest fraction of the nation's total income was

		consumption of goods and services.
		entrepreneurship.
		capital.
		labor.

QUESTION 8

1. Items bought by individuals to provide personal enjoyment are termed

		personal goods.
		consumption of goods.
		consumption or investment goods.
		standard goods.

QUESTION 9

1. In the advanced economies, ________ of the factories use advanced capital equipment and in the developing economies ________ of the factories use advanced capital equipment

		virtually all; none
		some; some
		virtually all; virtually all
		virtually all; some

QUESTION 10

1. The productive resource that includes all the "gifts of nature" is called

		land.
		labor.
		entrepreneurship.
		capital.

QUESTION 11

1. What would be an example of government good?

		Donald Trump purchases furniture for his office.
		Antonio, the manager of the local Taco Hut, purchases a new deep fryer.
		The local driver's license office purchases a new digital camera and printer.
		Jake buys an iPhone.

QUESTION 12

1. The world population is approximately ________ people.

		2 trillion
		680 million
		6.8 billion
		6.8 million

QUESTION 13

1. Computers and insurance coverage produced in the United States and sold to people in other nations are categorized as

		U.S. exports of goods and services.
		U.S. government goods and services.
		foreign capital goods.
		U.S. consumer goods and services.

QUESTION 14

1. Of the following, the federal government obtains most revenue from

		corporate income taxes.
		excise taxes.
		sales taxes.
		social security taxes.

QUESTION 15

1. Items bought by businesses to help produce other goods and services are called

		capital goods.
		government goods and services.
		consumption of goods and services.
		exports of goods and services.

QUESTION 16

1. The majority of the income earned in the United States is paid in

		profit.
		interest.
		rent.
		wages.

QUESTION 17

1. Dan missed class the day the professor covered the circular flow model. Dan asked his friend Joan to explain markets to him. Joan correctly stated that a market

		must include a written contract between buyers and sellers.
		requires a physical location for buyers and sellers to get together.
		is only a place to purchase groceries.
		is an arrangement that brings buyers and sellers together.

QUESTION 18

1. The United States possesses a large amount of human capital. As a result of this fact, in the United States, there is a

		highly skilled and educated labor force.
		a large number of kind and generous humans.
		a large number of people and a great deal of land.
		a large amount of machinery and equipment.

QUESTION 19

1. Which of the following correctly lists the categories of factors of production?

		labor, machines, buildings, capital, and entrepreneurship
		land, buildings, capital, and entrepreneurship
		land, labor, capital, and entrepreneurship
		forests, fish, buildings, capital, and entrepreneurship

QUESTION 20

1. Which of the following correctly lists the categories of factors of production?

		capital, money, and labor
		hardware, software, land, and money
		land, labor, capital, and entrepreneurship
		machines, buildings, land, and money

QUESTION 21

1. In the United States, the poorest 20 percent of households receive roughly ________ percent of total income.

		10
		3
		15
		20

QUESTION 22

1. What would be an example of a consumption service?

		Jake buys an iPhone.
		The local driver's license office purchases a new digital camera and printer.
		Antonio, the manager of the local Taco Hut, purchases a new deep fryer.
		Rhianna gets a haircut.

QUESTION 23

1. The total value of capital in the United States is around

		$47 trillion.
		$10 trillion.
		$100 trillion.
		$79 trillion.

QUESTION 24

1. An export good is a good produced

		by foreigners in the United States and purchased by U.S. households.
		in another country and purchased by U.S. residents.
		in the United States and sold to foreigners living in the United States.
		in the United States and sold in other countries.

QUESTION 25

1. ________ paid for the use of land; ________ paid for the services of labor; and ________ paid for the use of capital.

		Interest is; wages are; profit is
		Rent is; wages are; interest is
		Rent is; interest is; wages are
		Mortgages are; interest is; wages are

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ECON-1020 Chapter Notes - Chapter 11: Marginal Product, Marginal Utility, Marginal Cost

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