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Exam 18: The Markets for the Factors of Production

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Question 1

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Figure 18-5 -Refer to Figure 18-5. If the relevant labor supply curve is S₂ and the current wage is W₁,

A) there is a surplus of labor.
B) the quantity of labor demanded exceeds the quantity of labor supplied.
C) an increase in the minimum wage could restore equilibrium in the market.
D) firms will need to raise the wage to restore equilibrium.

E) None of the above
F) A) and B)

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Question 2

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Figure 18-1 -Refer to Figure 18-1. Suppose the firm sells its output for $14 per unit, and it pays each of its workers $120 per day. When output increases from 57 units to 69 units, the

A) marginal cost is $10 per unit of output.
B) marginal revenue is $5 per unit of output.
C) value of the marginal product of labor is $210.
D) firm's profit decreases.

E) B) and C)
F) A) and B)

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Question 3

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Consider the market for capital equipment. Suppose the market price of firms' output increases. Holding all else constant, the equilibrium quantity of capital equipment will

Bill is a laborer. What is the relationship between Bill's wage and his opportunity cost of an hour of leisure?

Which of the following would shift a market labor supply curve to the left?

Figure 18-6 ​ -Refer to Figure 18-6. Which of the following is a possible explanation of the shift of the labor demand curve from D₁ to D₂?

Average productivity can be measured as total output divided by total units of labor.

Scenario 18-3 Gabrielle has two jobs, one for the winter and one for the summer. In the winter, she works as a lift attendant at a ski resort where she earns $16 per hour. During the summer, she drives a tour bus around the ski resort, earning $11 per hour. -Refer to Scenario 18-3. During the winter months, what is Gabrielle's opportunity cost of taking an hour off work to go enjoy some leisure time?

Consider the market for medical doctors. Suppose the opportunity cost of going to medical school decreases for many individuals. Suppose, it generally takes about 10 years to become a practicing doctor. Holding all else constant, in 10 years the equilibrium wage for doctors will

Oil field workers' wages are directly tied to the world price of oil.

Figure 18-8 The figure shows the relationship between the number of mechanics hired and the number of car repairs performed per day at a car-repair shop. ​ -Refer to Figure 18-8. Suppose the shop pays each of its mechanics $210 per day. Over what interval of prices (that is, charges per car repair, P) would the shop maximize its profit by hiring exactly 3 mechanics? (Determine P₁ and P₂ such that P₁ < P < P₂ ).

Table 18-6 Consider the following daily production data for MadeFromScratch, Inc. MadeFromScratch sells cupcakes for $3 each and pays the workers a wage of $325 per day. ​ ​ $\begin{array} { | c | c | c | c | c | c | } \hline \begin{array} { c } \text { Labor } \\\text { (Number of } \\\text { workers) }\end{array} & \begin{array} { c } \text { Output } \\\text { (Cupcakes per } \\\text { day) }\end{array} & \begin{array} { c } \text { Marginal } \\\text { Product } \\\text { of Labor } \\\text { (Cupcakes per } \\\text { day) }\end{array} & \begin{array} { c } \text { Value of the } \\\text { Marginal } \\\text { Product of Labor } \\\text { (Cupcakes) }\end{array} & \begin{array} { c } \text { Wage } \\\text { (Dollarsper } \\\text { worker per } \\\text { day) }\end{array} & \begin{array} { c } \text { Margin } \\\text { Profit } \\\text { (Dollar }\end{array} \\\hline 0 & 0 & & & 325 & \\\hline 1 & 200 & & & 325 & \\\hline 2 & 350 & & & 325 & \\\hline 3 & 475 & & & 325 & \\\hline 4 & 575 & & &325 & \\\hline\end{array}$ ​ -Refer to Table 18-6. Assuming MadeFromScratch is a competitive, profit-maximizing firm, how many workers will the firm hire?

A profit-maximizing competitive firm will hire workers up to the point at which the wage equals the price of the final good multiplied by the marginal product of the last worker hired.

What happens to labor supply in the pear-picking market when the wage paid to apple pickers increases?

Table 18-4 ​ ​ ​ -Refer to Table 18-4. How many workers should the firm hire?

Labor-saving technological advances increase the marginal productivity of labor.

A recent flood in the Midwest has destroyed much of the farmland that lies in fertile regions near the rivers. Describe the effect of the flood on the marginal productivity of land, labor, and capital. How would the flood affect the price of inputs? Provide some examples.

Scenario 18-2 Gertrude Kelp owns three boats that participate in commercial fishing for fresh Pacific salmon off the coast of Alaska. As part of her business, she hires a captain and several crew members for each boat. In the market for fresh Pacific salmon, there are thousands of firms like Gertrude's. While Gertrude usually catches a significant number of fish each year, her contribution to the entire harvest of salmon is negligible relative to the size of the market. -Refer to Scenario 18-2. If the price of fresh Pacific salmon were to decrease significantly, it is most likely that Gertrude would

Table 18-6 Consider the following daily production data for MadeFromScratch, Inc. MadeFromScratch sells cupcakes for $3 each and pays the workers a wage of $325 per day. ​ ​ $\begin{array} { | c | c | c | c | c | c | } \hline \begin{array} { c } \text { Labor } \\\text { (Number of } \\\text { workers) }\end{array} & \begin{array} { c } \text { Output } \\\text { (Cupcakes per } \\\text { day) }\end{array} & \begin{array} { c } \text { Marginal } \\\text { Product } \\\text { of Labor } \\\text { (Cupcakes per } \\\text { day) }\end{array} & \begin{array} { c } \text { Value of the } \\\text { Marginal } \\\text { Product of Labor } \\\text { (Cupcakes) }\end{array} & \begin{array} { c } \text { Wage } \\\text { (Dollarsper } \\\text { worker per } \\\text { day) }\end{array} & \begin{array} { c } \text { Margin } \\\text { Profit } \\\text { (Dollar }\end{array} \\\hline 0 & 0 & & & 325 & \\\hline 1 & 200 & & & 325 & \\\hline 2 & 350 & & & 325 & \\\hline 3 & 475 & & & 325 & \\\hline 4 & 575 & & &325 & \\\hline\end{array}$ ​ -Refer to Table 18-6. Suppose that there is a technological advance that allows MadeFromScratch employees to produce more cupcakes than they could before. Because of this change, the firm's

Suppose that the "Millennial" generation values leisure more than past generations. We can expect a decrease in the labor supply as the Millennials enter their prime working ages and a corresponding decrease in wages.