Factor Market Practice Test
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1. The factors of production are best defined as the
a. output produced from raw materials.
b. inputs used to produce goods and services.
c. wages paid to the workforce.
d. goods and services sold in the market.
2. Factor-market analysis could not be complete without some characterization of
a. product-market demand
b. the marginal productivities of the different factors of production
c. market prices for final goods and services.
d. All of the above are correct.
3. Which of the following best illustrates the concept of "derived demand?"
a. An increase in the wages of auto workers will lead to an increase in the demand for robots
in automobile factories.
b. An automobile producer's decision to supply more cars will lead to an increase in the
demand for automobile production workers.
c. An automobile producer's decision to supply more minivans results from a decrease in the
demand for station wagons.
d. An increase in the price of gasoline will lead to an increase in the demand for small cars.
4. For a competitive, profit-maximizing firm, the labor demand curve is the same as the
a. marginal cost curve.
c. value of the marginal product curve
b. marginal product curve
d. profit maximizing function.
5. What causes the labor demand curve to shift?
(i)
changes in productivity
(ii)
changes in wages
(iii)
changes in output prices
a. (i) and (ii)
c. (i) and (iii)
b. (ii) and (iii)
d. All listed (a,b,c)
6. Competitive firms hire workers until the additional benefit they receive from the last worker hired is equal to
(i)
the additional cost of that worker.
(ii)
the wage paid to that worker.
(iii)
the marginal product of that worker.
a. (i) only
b. (iii) only
c. (i) and (ii)
d. (ii) and (iii)
7. A sandwich shop hires workers to make sandwiches and sell them to customers. If the firm is
monopolistocally competitive in the market for sandwiches and competitive in the market for sandwichmakers, then it has:
a. some control over both the price of sandwiches and the wage it pays to its workers.
b. no control over the price of sandwiches but some control over the wage it pays
c. some control over the price of sandwiches but no control over the wage it pays
d. no control over either the price of sandwiches or the wage it pays to its workers.
8. Labor-augmenting technology causes which of the following?
(i)
The marginal productivity of labor increases.
(ii)
The marginal productivity of labor decreases.
(iii) Labor demand shifts to the right.
(iv) Labor demand shifts to the left.
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a. (i) only
b. (ii) only
c. (i) and (iii)
d. (ii) and (iv)
A competitive firm sells its output for $45 per unit. The marginal product of the 30th worker is 4 units of
output per day; the marginal product of the 31st worker is 3 units per day. Wage rate = $150 per day.
a. For the 31st worker, the marginal profit is $135.
b. For the 30th worker, the value of the marginal product of labor is $600.
c. For the 30th worker, the marginal profit is $180.
d. None of the above is correct.
Aurora Custom Cabinets produces and sells custom kitchen cabinets. The firm has determined that if it hires
10 workers, it can produce 4 sets of cabinets per day. If it hires 11 workers, it can produce 4.2 sets of cabinets
per day. It sells each set of cabinets for $2,000, and it pays each of its workers $200 per day.
a. For the 11th worker, the value of the marginal product of labor is $500.
b. For the 11th worker, the marginal revenue product is $400.
c. The firm is maximizing its profit.
d. If the firm is employing 11 workers, then its profit would increase if it cut back to 10
workers.
Workers earn $150 per day. Eight workers can manufacture 70 radios per day, nine workers can manufacture
90 radios per day. Radios can be sold for $10 each, what is the marginal profit on the ninth worker
a. $200
b. $150
c. $100
d. $50
A firm that has some market power in the product market but is competitive in the factor market will:
a. pay a lower wage than a competitive firm in the product market
b. hire the same number of workers as a competitive firm and pay the same wage
c. hire less workers than a competitive firm but pay the same wage
d. hire more workers than a competitive firm but pay a lower wage
An industry that has some market power in the product market but is competitive in the factor market will:
a. will have a marginal revenue product curve identical to a competitive product industry
b. will have a marginal revenue product curve to the right of a competitive product industry
c. will have a marginal revenue product curve to the left of a competitive product industry
d. it depends on whether the firm is a monopoly or oligopoly industry
If the demand for low skilled workers rises across the USA, how does 1 oligopoly firm respond holding other
factors constant:
a. they hire the same number of workers at a higher wage rate
b. they hire less workers at a higher wage rate
c. they hire less workers at the same wage rate
d. they pay a higher wage rate but number of employees hired is indeterminent
If the demand for tehcnology workers rises across the USA, how does 1 oligopoly firm respond if the demand
for their product also has increased
a. they hire the same number of workers at a higher wage rate
b. they hire less workers at a higher wage rate
c. they hire less workers at the same wage rate
d. they pay a higher wage rate but number of employees hired is indeterminent
Factor Market Practice Test
Answer Section
MULTIPLE CHOICE
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2.
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B
D
B
C
C
C
C
C
D
B
D
C
C
B
D