Instructions
Please read the questions carefully.

This assessment is worth 100 points.

1. Assume labor is the only variable input and that an additional input of labor increases total output from 72 to 78 units. If the product sells for $6 per unit in a purely competitive market, the MRP of this additional worker is:   (4 points)
   
   

   a.		$6.
   b.		$12.
   c.		$36.
   d.		$72.

   
   
2. Answer the next question(s) on the basis of the following information: Jones owns a barber shop and charges $6 per haircut. By hiring one barber at $10 per hour the shop can provide 24 haircuts per 8-hour day. By hiring a second barber at the same wage rate the shop can now provide a total of 42 haircuts per day.
   
   Refer to the above information. The MP of the second barber is:   (4 points)
   
   

   a.		$240.
   b.		$108.
   c.		18.
   d.		42.

   
   
3. Assume the Apex Manufacturing company is purely competitive in both the hire of labor and in the sale of its product. Apex's labor demand curve would be:   (4 points)
   
   

   a.		vertical at the current level of employment.
   b.		horizontal at the "going" wage rate.
   c.		upward sloping.
   d.		downward sloping.

   
   
4. Answer the next question(s) on the basis of the following information for Manfred's Shoe Shine Parlor. Assume Manfred hires labor, its only variable input, under purely competitive conditions. Shoe shines are also sold competitively.
   
   
   
   Refer to the above data. What is the marginal product of the sixth worker?   (4 points)
   
   

   a.		2 units
   b.		3 units
   c.		4 units
   d.		5 units

   
   
5. Answer the next question(s) on the basis of the following information for Manfred's Shoe Shine Parlor. Assume Manfred hires labor, its only variable input, under purely competitive conditions. Shoe shines are also sold competitively.
   
   
   
   Refer to the above data. At what price does each shoe shine sell?   (4 points)
   
   

   a.		$1
   b.		$2
   c.		$3
   d.		$2.50

   
   
6. Assume that a restaurant is hiring labor in an amount such that the MRC of the last worker is $16 and her MRP is $12. On the basis of this information we can say that:   (4 points)
   
   

   a.		profits will be increased by hiring additional workers.
   b.		profits will be increased by hiring fewer workers.
   c.		marginal revenue product must exceed average revenue product.
   d.		the restaurant is maximizing profits.

   
   
7. Other things equal, the resource demand curve of an imperfectly competitive seller will:   (4 points)
   
   

   a.		lie below its marginal revenue product curve.
   b.		be subject to increasing marginal productivity.
   c.		be less elastic than that of a purely competitive seller.
   d.		be more elastic than that of a purely competitive seller.

   
   
8. The MRP curve is the resource demand curve for:   (4 points)
   
   

   a.		neither the purely competitive nor the imperfectly competitive seller.
   b.		the imperfectly competitive seller, but not the purely competitive seller.
   c.		the purely competitive seller, but not the imperfectly competitive seller.
   d.		both the purely competitive and imperfectly competitive seller.

   
   
9. The change in a firm's total revenue that results from the hire of an additional worker is measured by:   (4 points)
   
   

   a.		marginal product.
   b.		marginal revenue.
   c.		marginal revenue product.
   d.		average revenue product.

   
   
10. Answer the next question(s) on the basis of the following information.
    
    A farmer who has fixed amounts of land and capital finds that total product is 24 for the first worker hired; 32 when two workers are hired; 37 when three are hired; and 40 when four are hired. The farmer's product sells for $3 per unit and the wage rate is $13 per worker.
    
    Refer to the above information. What is the farmer's profit-maximizing output?   (4 points)
    
    

    a.		20
    b.		32
    c.		37
    d.		40

    
    
11. Suppose the demand for strawberries rises sharply, resulting in an increased price of strawberries. As it relates to strawberry pickers, we could expect the:   (4 points)
    
    

    a.		MRP curve to shift to the right.
    b.		MRP curve to shift to the left.
    c.		MRC curve to shift downward.
    d.		MP curve to shift downward.

    
    
12. If technology dictates that labor and capital must be used in fixed proportions, an increase in the price of capital will cause a firm to use:   (4 points)
    
    

    a.		more labor as a consequence of the substitution effect.
    b.		more labor as a consequence of the output effect.
    c.		less labor as a consequence of the substitution effect.
    d.		less labor as a consequence of the output effect.

    
    
13. Assume the price of capital doubles and, as a result, firms make no change in the relative quantities of capital and labor they employ. This implies that:   (4 points)
    
    

    a.		labor is not readily substitutable for capital.
    b.		the law of diminishing returns is not applicable.
    c.		the firms are producing an inferior good.
    d.		the demand for capital is highly price elastic.

    
    
14. "A change in an input price will alter both production costs and the profit-maximizing output. Thus a decline in the price of capital will reduce production costs, increase the profit-maximizing output, and thereby increase the demand for labor." This describes the:   (4 points)
    
    

    a.		output effect.
    b.		substitution effect.
    c.		idea of derived demand.
    d.		law of diminishing returns.

    
    
15. Suppose that the price of capital increases relative to the wage rate and, as a result, the demand for labor increases. This means that:   (4 points)
    
    

    a.		the substitution effect is greater than the output effect.
    b.		labor and capital are complementary resources.
    c.		it is impossible to substitute labor for capital.
    d.		the output effect is greater than the substitution effect.

    
    
16. 
    
    
    Refer to the above data. For the $16 to $14 range of wage rates, labor demand is:   (4 points)
    
    

    a.		perfectly elastic.
    b.		elastic.
    c.		perfectly inelastic.
    d.		inelastic.

    
    
17. 
    
    
    Refer to the above data. Over the $10 to $8 range of wage rates, the demand for labor is:   (4 points)
    
    

    a.		perfectly elastic.
    b.		elastic.
    c.		unit elastic.
    d.		inelastic.

    
    
18. Answer the next question(s) on the basis of the following marginal product data for resources a and b. The output of these independent resources sells in a purely competitive market at $1 per unit.
    
    
    
    Refer to the above data. Assuming the prices of resources a and b are $5 and $8 respectively, what is the least costly combination of resources for the firm to employ in producing 192 units of output?   (4 points)
    
    

    a.		2 of a and 6 of b
    b.		6 of a and 2 of b
    c.		4 of a and 3 of b
    d.		3 of a and 4 of b

    
    
19. Assume a firm purchases resources a and b under purely competitive conditions and combines these resources to produce X. Product X is sold in a purely competitive market. The MP of a and b are 6 and 3 respectively and the prices of a and b are $12 and $6 respectively. If equilibrium exists, the price of X will be:   (4 points)
    
    

    a.		$1.
    b.		$.50.
    c.		$2.
    d.		$5.

    
    
20. Suppose a firm is employing all its inputs so that the MRP per dollar spent on each is the same. This suggests that the:   (4 points)
    
    

    a.		amount of each resource employed will depend on both its price and its productivity.
    b.		price of each input must be identical.
    c.		firm is using the same quantity of each input.
    d.		total expenditure on each input is identical.

    
    
21. Answer the next question(s) on the basis of the following information:
    
    Suppose a firm hires both labor (L) and capital (C) under purely competitive conditions. The price of labor is P_L and that of capital is P_C. The marginal product of labor is MP_L and that of capital is MP_C. The firm sells its product competitively at a price of P_X.
    
    Refer to the above information. Which of the following must pertain if the firm is to minimize the cost of producing any output?   (4 points)
    
    

    a.		MPC = MPL = PX.
    b.		MPC = PC and MPL = PL.
    c.		MPC/PC = MPL/PL.
    d.		MPC/PX = MPL/PX.

    
    
22. 
    
    
    
    Refer to the above diagram. If a firm produces output Q₁ at a unit cost of b, then the:   (4 points)
    
    

    a.		firm is not fulfilling the least-cost rule in employing resources.
    b.		firm may or may not be maximizing profits.
    c.		marginal product per dollar's worth of each resource employed is not the same.
    d.		firm has achieved minimum efficient scale.

    
    
23. 
    
    
    
    Refer to the above diagram. The production of Q₁ units of output at an average cost of a:   (4 points)
    
    

    a.		is not possible, given present technology and resource prices.
    b.		can be achieved if the firm would hire the optimal mix of resources.
    c.		would entail X-inefficiency.
    d.		can be realized if the last dollar spent on each input were equal to its marginal product.

    
    
24. The marginal productivity theory of income distribution has been criticized because:   (4 points)
    
    

    a.		the resulting distribution of income is likely to be too equal to maintain production incentives.
    b.		income from inherited property is inconsistent with the theory.
    c.		purely competitive conditions characterize most resource markets.
    d.		it fails to recognize that resource demand is derived from product demand.

    
    
25. If the substitution effect outweighs the output effect, an increase in the price of a substitute resource will increase the demand for labor.   (4 points)
    
    

    a.		True
    b.		False