Multiple Choice questions

1. In a competitive industry, suppose the marginal revenue product (MRP) of the last doughnut baker hired is $35, the MRP of the last bagel baker hired is $15, and a bakery must pay doughnut bakers $40 a day and bagel bakers $10 per day. To maximize profits the bakery should hire:
A) more doughnut bakers and less bagel bakers.
B) less doughnut bakers and more bagel bakers.
C) less of both doughnut bakers and bagel bakers.
D) more of both doughnut bakers and bagel bakers.

2. If two inputs are complementary an increase in the price of one input will:
A) decrease the demand for the other input.
B) increase the demand for the other input.
C) increase the quantity demanded for the other input.
D) have no effect on the demand for the other input.

3. If the marginal revenue product (MRP) of labor is less than the wage rate:
A) the firm is making profits. C) more labor should be employed.
B) the firm is incurring losses. D) less labor should be employed.

4. Conglomerate mergers are combinations of:
A) many small firms.
B) firms producing the same product.
C) firms producing unrelated products.
D) firms operating at different stages in a given production process.

5. "Vertical integration" refers to mergers between firms:
A) making unrelated types of products.
B) at the same stage of production of the same end product.
C) at the same stage of production of different end products.
D) at different stages of production of the same end product.

6. Which produces market failure problems in private markets?
A) the maximization of consumer satisfaction
B) spillover costs and benefits
C) allocative efficiency
D) productive efficiency

7. A profit-maximizing firm's daily total revenue is $155 with 3 workers, $200 with 4 workers, and $250 with 5 workers. The marginal cost of each worker is $60 per day. The firm should:
A) hire a fifth worker. C) hire more than five workers.
B) hire four workers. D) none of the above.

8. Why do skilled workers generally earn more than unskilled workers?
A) The demand for unskilled labor is more inelastic than the demand for skilled labor.
B) Skilled labor has higher marginal revenue products than unskilled labor.
C) The demand for unskilled labor is greater than the demand for skilled labor.
D) The supply of skilled labor is greater than the supply of unskilled labor.

9. Other things being the same, if the demand for labor is inelastic:
A) decreases in wage rates will result in greater payrolls.
B) increases in wage rates will result in greater payrolls.
C) decreases in wage rates will increase both employment and worker incomes.
D) increases in wage rates will result in smaller payrolls.

10. A characteristic of a purely competitive labor market would be:
A) many firms competing in hiring workers.
B) firms hiring different types of labor.
C) wage maker behavior by the firms.
D) price maker behavior by the firms.

11. If a factor of production has many close substitutes, we would expect that its price elasticity of demand would be:
A) unity.
B) less than one.
C) greater than one.
D) unimportant because ease of substitution has no effect on the price elasticity of that factor.

12. The demand for a productive resource is said to be "derived" because the demand for the factor:
A) depends on the demand for the product it is used to make.
B) depends on the demand for a complementary factor.
C) is derived from the state of the economy.
D) is derived from government policy.

13. A firm's demand curve for labor:
A) is its marginal product curve.
B) will shift to the left if the price of the product the labor is producing should fall.
C) is perfectly elastic if the firm is selling its product in a purely competitive market.
D) reflects a direct (positive) relationship between the number of workers hired and the money wage rate.

14. Which is an example of a change in productivity that increases labor demand?
A) Mail-order catalog sales rise, thus increasing the demand for workers in the mail-order business.
B) Sport utility vehicles increase in popularity, thus increasing the demand for the workers who make them.
C) A decrease in the price of lumber decreases the cost of building homes, thus increasing the demand for construction workers.
D) A technological change increases output per worker in the computer industry, thus increasing the demand for computer workers.

15. A merger between one firm and another firm that is its supplier is known as a:
A) horizontal merger. C) conglomerate merger.
B) vertical merger. D) parallel merger.

Use the following to answer questions 16-17:

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. Operators of hydroelectric generating plants on the river find that they must clean up the river's water before it flows through their equipment.

16. The above situation is an example of:
A) an external economy. C) the exclusion principle.
B) a spillover cost. D) a spillover benefit.

17. Which of the following would be most appropriate for dealing with this problem?
A) Levy a tax on the consumers of paper products and use the tax revenues to conduct research on new energy sources.
B) Levy a tax on the consumers of electricity and use the tax revenues to subsidize the consumers of paper products.
C) Levy a tax on the producers of electricity and use the tax revenues to clean up the river.
D) Levy a tax on the producers of paper products and use the tax revenues to clean up the river.

18. Near an ocean beach, a high-rise building is being constructed that will block the scenic view of the ocean by the residents of a low-rise building. The Coase theorem suggests that this type of dispute between the owners of high-rise and low-rise buildings would best be resolved by:
A) the owners themselves.
B) city government officials.
C) a zoning ordinance restricting high-rise buildings.
D) a government fine for the builder of the high-rise.

19. If the price of labor falls relative to the price of capital, and as a result the quantity of capital employed decreases, it can be concluded that:
A) the substitution effect is greater than the output effect.
B) the output effect is greater than the substitution effect.
C) the income effect is greater than the output effect.
D) labor cannot be easily substituted for capital.

20. A public good:
A) generally results in substantial spillover costs.
B) can never be provided by a nongovernmental organization.
C) can't be provided to one person without making it available to others as well.
D) costs essentially nothing to produce and is provided by the government at zero price.

21. Marginal resource cost is:
A) the increase in a firm's total cost caused by hiring one additional unit of an input.
B) a firm's cost of hiring one group of inputs, such as capital or labor.
C) the firm's demand curve for a productive resource.
D) determined by the marginal physical product schedule for an input.

22. If the price level rises by 4 percent in a year and nominal wages increase by 2 percent, then real wages will:
A) decrease by 6 percent. C) decrease by 2 percent.
B) decrease by 4 percent. D) increase by 2 percent.

23. Critics contend that imposing a minimum wage higher than the equilibrium wage in a competitive industry would:
A) decrease the number of workers employed in that industry.
B) decrease the quantity of labor supplied to that industry.
C) increase the demand for labor in the industry.
D) increase employment in that industry.

24. The marginal revenue product of an input in a competitive market decreases as a firm increases the quantity of an input used because of the:
A) law of diminishing returns. C) homogeneity of the product.
B) law of diminishing marginal utility. D) free mobility of resources.

25. Which will not be a determinant of the price elasticity of demand for an input?
A) the price of the input
B) the availability of substitutes for the input
C) the elasticity of demand for the product it produces
D) the total cost of an input as a proportion of the total cost of producing units of output

26. Marginal revenue product is the increase in:
A) total revenue from a decrease in the price of the product.
B) marginal revenue from a decrease in the price of the product.
C) marginal revenue from the use of an additional unit of a resource.
D) total revenue from the use of an additional unit of a resource.

27. Which type of merger is most likely to be the focus of antitrust law scrutiny and enforcement?
A) conglomerate B) horizontal C) vertical D) natural

28. Which of the following statements concerning a pure public good is false?
A) It is impossible to exclude nontaxpayers from the receipt of the public good.
B) All benefits associated with the production and use of a public good are received by the government.
C) The availability of a public good to one person simultaneously makes it available to all members of society.
D) The private sector does not have an economic incentive to produce a socially optimal amount of a public good.

29. Which is an example of a change in the price of another resource that increases labor demand?
A) Software sales rise, thus increasing the demand for software developers.
B) Snowboarding increases in popularity, thus increasing the demand for the workers who make snowboards.
C) A decrease in the price of wood decreases the cost of furniture, thus increasing the demand for furniture workers.
D) A technological change increases output per worker in the computer industry, thus increasing the demand for computer workers.

30. Suppose two workers can harvest $46 and three workers can harvest $60 worth of apples per day. On the basis of this information we can say that the:
A) marginal product of each of the first two workers is 23.
B) marginal revenue product of each of the first two workers is $23.
C) marginal revenue product of the third worker is $14.
D) third worker should not be hired.

31. A competitive employer will hire inputs up to the point where the:
A) marginal product of the input reaches a maximum.
B) price of the input equals the price of the output.
C) price of the input equals the marginal product of the input.
D) price of the input equals the marginal revenue product of the input.

32. By requiring car producers to install emission control devices on cars, the government forces these producers to internalize some of the external costs of auto pollution. This will lead to the equilibrium price of cars:
A) decreasing and the quantity increasing. C) increasing and the quantity increasing.
B) decreasing and the quantity decreasing. D) increasing and the quantity decreasing.

33. A merger between McDonald's and Burger King would be an example of a:
A) conglomerate merger. C) vertical merger.
B) horizontal merger. D) parallel merger.

34. The Occupational Safety and Health Administration is an example of:
A) industrial regulation. C) antitrust regulation.
B) social regulation. D) public utility regulation.

35. Currently, the U.S. federal budget is approximately a:
A) $450 million deficit C) $50 million surplus
B) $450 billion deficit D) $25 million deficit

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Solution Summary

35 Multiple Choice questions dealing with competitive industry, complementary inputs, marginal revenue product, Conglomerate mergers, Vertical integration, market failure problems in private markets, marginal cost, skilled workers, demand for labor, public good, Marginal resource cost, marginal revenue product, price elasticity of demand for an input, antitrust law.