Micro Unit 7 Practice Problems (Part 1)
Which of the following will most likely lead to zero economic profits?
(A)Price floors
(B)Price discrimination
(C)External costs
(D)Free entry and exit of firms
(E)External benefits
A perfectly competitive firm hires three workers in a perfectly competitive labor market. The marginal products of the
three workers are shown in this table above.
Which of the following will be true?
(A)Each worker will receive a wage based on the marginal product of the last worker hired.
(B)Each worker will receive a wage based on the marginal product of the first worker hired.
(C)Each worker will receive a wage based on the average of the marginal products of the workers.
(D)Worker 1 will receive the highest wage.
(E)Worker 3 will receive the highest wage.
Assume a perfectly competitive labor market. Which of the following correctly describes the individual firm’s demand
curve for labor and the market demand curve for labor?
(A)Firms Demand Curve for Labor = Downward Sloping ; Market Demand Curve for Labor = Downward Sloping
(B)Firms Demand Curve for Labor = Downward Sloping ; Market Demand Curve for Labor = Horizontal
(C)Firms Demand Curve for Labor = Horizontal ; Market Demand Curve for Labor = Downward Sloping
(D)Firms Demand Curve for Labor = Horizontal ; Market Demand Curve for Labor = Horizontal
(E)Firms Demand Curve for Labor = Horizontal ; Market Demand Curve for Labor = Upward Sloping
Assume that labor and capital are the only two inputs a perfectly competitive firm uses to produce wheat. The firm hires
its inputs in perfectly competitive input markets. The unit price of labor is $8 and of capital is $20. When the firm
employs the profit-maximizing combination of these two inputs, the marginal product of labor is 2 tons of wheat and of
capital is 5 tons of wheat. The price of wheat per ton must be
(A) $2
(B) $4
(C) $5
(D) $8
(E) $10
A profit-maximizing firm will continue to hire workers until the marginal revenue product of labor is equal to the
(A)marginal product of labor
(B)marginal revenue product of capital
(C)demand for labor
(D)price of the good that labor is producing
(E)marginal factor cost
Assume that the government imposes an effective minimum wage in a perfectly competitive labor market. What will
happen to employment and total wage payments?
(A)Employment = Decrease ; Total Wage Payments = Increase
(B)Employment = Decrease ; Total Wage Payments = Decrease
(C)Employment = Decrease ; Total Wage Payments = Indeterminate
(D)Employment = Increase ; Total Wage Payments = Increase
(E)Employment = Increase ; Total Wage Payments = Indeterminate
Suppose that people who work in the paint industry face a great risk of developing an incurable disease. A medical
breakthrough that eliminates the risk will most likely cause which of the following shifts in the supply and demand
curves for workers in the paint industry?
(A)Supply Curve = Shift Right ; Demand Curve = No Shift
(B)Supply Curve = Shift Left ; Demand Curve = No Shift
(C)Supply Curve = Shift Left ; Demand Curve = Shift Left
(D)Supply Curve = Shift Left ; Demand Curve = Shift Right
(E)Supply Curve = No Shift ; Demand Curve = Shift Left
A firm sells its output in a perfectly competitive market and hires two inputs, capital and labor, in perfectly competitive
factor markets. The product price is $15 per unit, the wage is $75 per day, and the marginal product of capital is 3. If the
firm is choosing the least-cost combination of labor and capital, the firm's marginal product of labor and the price of
capital must be equal to which of the following?
(A)Marginal Product of Labor = 25 ; Price of Capital = $5
(B)Marginal Product of Labor = 25 ; Price of Capital = $45
(C)Marginal Product of Labor = 5 ; Price of Capital = $15
(D)Marginal Product of Labor = 5 ; Price of Capital = $25
(E)Marginal Product of Labor = 5 ; Price of Capital = $45
In the monopsonistic labor market shown in the diagram, which of the following indicates the number of workers the
firm will hire and the wage rate it will pay?
(A)Number of Workers = L1 ; Wage Rate = W1
(B)Number of Workers = L1 ; Wage Rate = W2
(C)Number of Workers = L1 ; Wage Rate = W3
(D)Number of Workers = L2 ; Wage Rate = W2
(E)Number of Workers = L2 ; Wage Rate = W4
In a perfectly competitive labor market, an increase in an effective minimum wage will result in
(A)an increase in the supply of workers
(B)a decrease in the supply of workers
(C)a decrease in the demand for workers
(D)more workers being hired
(E)fewer workers being hired
Given the information above, which of the following is true for a firm buying its labor and capital inputs in a perfectly
competitive market?
(A)The firm is producing its current level of output with the least-cost combination of labor and capital.
(B)The firm is maximizing profits with its current combination of inputs.
(C)The firm's level of output will remain the same if 1 unit of capital is substituted for 2 units of labor.
(D)The firm's input costs will decrease if 2 units of labor are substituted for 1 unit of capital.
(E)The firm can reduce the cost of its current level of output by laying off workers and employing more capital.
The demand curve for labor for a monopolist that faces a perfectly competitive factor market is called the
(A)average product curve
(B)marginal product curve
(C)marginal revenue curve
(D)marginal revenue product curve
(E)value of the average product curve
This table describes the production function of an auto parts manufacturer. Assume that the firm can hire as many
workers as it wants at the market wage rate of $600 per week per worker and sell as many auto parts as it wants at the
price of $10 per part. To maximize profits, the firm should hire
(A)0 workers
(B)1 worker
(C)3 workers
(D)5 workers
(E)7 workers
Which of the following will occur in a perfectly competitive labor market if Firm X's demand for labor decreases?
(A)Equilibrium Market Wage Rate = Increase ; Employment by Firm X = Increase
(B)Equilibrium Market Wage Rate = No Change ; Employment by Firm X = No Change
(C)Equilibrium Market Wage Rate = No Change ; Employment by Firm X = Decrease
(D)Equilibrium Market Wage Rate = Decrease ; Employment by Firm X = Decrease
(E)Equilibrium Market Wage Rate = Decrease ; Employment by Firm X = No Change
This graph shows the marginal revenue product (MRP) and the market wage rate for a profit-maximizing firm. Which of
the following is true of the firm's hiring of labor?
(A)It should hire 15 workers.
(B)It should hire between 15 and 40 workers.
(C)It should hire 40 workers.
(D)It should hire between 40 and 90 workers.
(E)It should hire 90 workers.
Assume that firms sell their output in a perfectly competitive product market and hire labor in a perfectly competitive
labor market. If all other factors remain constant, an increase in the demand for the firms' product will result in which of
the following changes in the labor market?
(A)Firms will move down along the demand curve for labor and hire more workers.
(B)The supply curve for labor will shift to the right.
(C)The demand curve for labor will shift to the right.
(D)The supply curve for labor will shift to the left.
(E)The demand curve for labor will shift to the left.
A profit-maximizing firm will continue to hire workers until the
(A)marginal factor cost of labor is equal to the marginal revenue product of labor
(B)marginal factor cost of labor is equal to the price of the good produced using labor
(C)marginal product of labor is equal to the marginal revenue product of labor
(D)marginal product of labor is equal to the marginal factor cost of labor
(E)marginal product of labor is equal to the price of labor
What is the definition of the marginal revenue product of labor?
(A)It is the price of the output times the wage paid to the worker.
(B)It is the change in the price of labor when the firm hires one more worker.
(C)It is the change in the average product of labor when a firm hires one more worker.
(D)It is the additional revenue generated by a firm when it hires one more worker.
(E)It is the marginal revenue + the price of the output.
In a competitive labor market, the demand for labor will go up when which of the following goes up?
(A)The number of people applying for the job.
(B)The demand for the product produced by those workers.
(C)The cost of medical insurance provided to workers by firms.
(D)The cost for workers to join a labor union.
(E)The law that determines the legal minimum wage.
If labor is the only variable input, what is the Marginal Factor Cost (MFC)?
(A)The change in total factor cost brought forth by hiring one more worker.
(B)The change in total revenue brought forth by hiring one more worker.
(C)The change in total factor cost brought forth by producing of one more unit of output.
(D)The total factor cost divided by the number of workers hired.
(E)The total factor cost divided by the level of production.
At its current employment level of labor and capital, a firm observes the following.
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Marginal product of labor = 30 units
Marginal product of capital = 60 units
Price of labor = $3 per unit
Price of capital = $15 per unit
Which of the following actions should the firm take in order to achieve the least-cost combination of labor and capital
and produce the same level of output?
(A)Labor = Increase ; Capital = Increase
(B)Labor = Increase ; Capital = Decrease
(C)Labor = Decrease ; Capital = Increase
(D)Labor = Decrease ; Capital = Decrease
(E)Labor = No Change ; Capital = No Change
Economists argue that most professional athletes earn economic rent because they
(A)make additional income through commercial endorsements of products
(B)are able to participate in sports for only a limited number of years before changing occupations
(C)earn far more as professional athletes than they could earn in their next-best occupation
(D)participate in sporting events only about six months during a year
(E)work less than 40 hours a week during the sport season
If a competitive firm pays its workers the value of the marginal product of the last worker hired, which of the following is
true?
(A)The firm will not earn any economic profits.
(B)Workers will look for employment elsewhere.
(C)The wage will be less than the marginal product.
(D)The firm will not maximize profits.
(E)The contribution of the last worker hired to the firm's profit will be zero.
This graph shows the conditions that a monopsonist faces in a labor market. How many workers would this monopsonist
hire and what wage rate would it pay?
(A)Number of Workers = 5 ; Wage Rate = $37.50
(B)Number of Workers = 10 ; Wage Rate = $30
(C)Number of Workers = 10 ; Wage Rate = $20
(D)Number of Workers = 14 ; Wage Rate = $24
(E)Number of Workers = 14 ; Wage Rate = $37.50
Firms hire domestic workers and international workers. These workers are perfect substitutes and can’t relocate in the
short run. The government offers firms a wage subsidy if they hire domestic workers. What is the effect of the subsidy
on the wage rate of international workers and the total hours they work?
(A)Wage Rate of International Workers = Goes down ; Total Hours Worked by International Workers = Goes down
(B)Wage Rate of International Workers = Stays the same ; Total Hours Worked by International Workers = Goes up
(C)Wage Rate of International Workers = Stays the same ; Total Hours Worked by International Workers = Goes down
(D)Wage Rate of International Workers = Goes up ; Total Hours Worked by International Workers = Goes down
(E)Wage Rate of International Workers = Goes down ; Total Hours Worked by International Workers = Stays the same
How many workers would the shirt company want to hire if the price of shirts were competitively priced at $10 and the
wage rate were $50 per day?
(A)0
(B)2
(C)3
(D)4
(E)5
If the effective minimum wage goes up, it will have a smaller impact on employment if the demand for labor is
(A)derived demand
(B)going down
(C)more inelastic
(D)more elastic
(E)unit elastic
What is the optimal combination of inputs in the long-run if a firm only uses labor and capital during production?
(A)The marginal product of capital = marginal product of labor.
(B)The marginal product per dollar of capital = the marginal product per dollar of labor.
(C)Total capital production = Total labor production.
(D)The marginal product of capital and labor are both equal to zero.
(E)All average products = marginal products.
Which of the following would NOT explain why a wage gap between two workers in a perfectly competitive free market
economy exists?
(A)What kind of car they drive
(B)What type of job they do
(C)How productive they are
(D)How much revenue they generate for their firm
(E)Amount of education
Firm Z produces and sells bananas in a perfectly competitive market and hires labor in a perfectly competitive market as
well. Which of the following best describes the demand curve for firm Z's bananas and Z's demand curve for labor?
(A)Demand for XYZ’s Corn = Vertical ; XYZ’s Labor Demand = Horizontal
(B)Demand for XYZ’s Corn = Horizontal ; XYZ’s Labor Demand = Vertical
(C)Demand for XYZ’s Corn = Horizontal ; XYZ’s Labor Demand = Downward Sloping
(D)Demand for XYZ’s Corn = Downward Sloping ; XYZ’s Labor Demand = Upward Sloping
(E)Demand for XYZ’s Corn = Upward Sloping ; XYZ’s Labor Demand = Horizontal
A firm that wants to maximize profit should hire workers until the
(A)marginal physical product = marginal revenue product
(B)marginal revenue = marginal factor cost
(C)marginal revenue product = marginal revenue
(D)marginal physical product = marginal factor cost
(E)marginal revenue product = marginal factor cost