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Exam 14: Markets for Factor Inputs

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Question 31

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Figure 14.2.2 -Refer to Figure 14.2.2 above. Which of the following equals economic rent?

A) The wage rate corresponding to point A on the graph
B) Area B
C) Area C
D) The rectangle (w* × L*)

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Question 32

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What happens to the marginal revenue product curve of a factor as more of a complementary factor is hired?

A) It shifts to the left, because its marginal product decreases.
B) It shifts to the left, because its marginal product increases.
C) It shifts to the right, because its marginal product decreases.
D) It shifts to the right, because its marginal product increases.

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Question 33

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When compared to the demand curve for only one variable input, the demand curve for a factor input when several inputs are variable is:

Assume that labor and capital are complements in production and that the wage declines. Which of the following statements best describes the adjustment in the use of labor?

Figure 14.4.2 -Given the information in Figure 14.4.2, the monopsony wage rate is:

Mr. Barnes has a monopoly in the production of electricity in the local market. The relevant marginal revenue of electricity sales as a function of labor employment is: The marginal product of labor in electricity production is 0.01. Mr. Barnes is a price taker in the labor employment market, and the market price of labor is $15. Determine Mr. Barnes' optimal employment of labor.

Suppose a labor market has perfectly inelastic supply that is composed of union and non-union workers, and both groups of workers initially earn the perfectly competitive wage. What happens to the equilibrium employment level and wage for non-union workers if the union exercises its bargaining power?

Figure 14.3.1 -Refer to Figure 14.3.1 above. The marginal expenditure lies above the average expenditure because:

The marginal expenditure curve for labor is based on the assumption that:

Scenario 14.4: John's firm is a competitor in your product market and a monopsonist in the labor market. The current market price of the product that your firm produces is $2. The total product and marginal product of labor are given as: TP = 100L - 0.125L² MP = 100 - 0.25L where L is the amount of labor employed. The supply curve for labor and the marginal expenditure curve for labor are given as follows: L = P_L -5 ME_L = 2L + 5 -Refer to Scenario 14.4. How much will the monopsonist pay each worker?

Firefighters are highly skilled workers who are typically employed by city governments. If a city reduces the wage rate paid to firefighters to be less than the equilibrium wage rate, what happens to the economic rents earned by the firefighters?

When comparing the market price of an input in a market characterized by bilateral monopoly to a perfectly competitive price:

Under an infinitely inelastic supply of land, the economic rents to land ________ if the price of land doubles.

In a competitive labor market, the supply of labor curve is expressed as: AE = $5 + 0.0025L, where AE represents the average expenditure ($/unit) and L represents units of labor hired per unit of time. The demand for labor is based on the following expression: MP = 5 - 0.001L, where MP represents marginal product of labor. Revenue from the final good is $5 per unit sold in a competitive market. a. Determine the equilibrium wage rate and labor employment rate. b. Compute the economic rent earned by labor.

Figure 14.4.1 A labor union is exercising monopoly power in the labor market. -Refer to Figure 14.4.1. To maximize economic rent, the labor union will agree to wage rate:

Let P be the output price for a particular good. Why is the value P*MP_L greater than MRP_L for a monopolist?

Figure 14.4.2 -Given the information in Figure 14.4.2, the competitive wage rate is:

Suppose the local market for legal services has an upward sloping supply curve, P_L = 150 + 0.0001Q_L where P_L is the price of legal services and Q_L is the number of hours of legal services. If the equilibrium price of legal services is $250 per hour, what is the aggregate economic rent earned by lawyers in this market?

Which of the following statements is TRUE when comparing monopsony and competitive labor markets?

Labor is typically assumed to be the only variable input in very short-run production systems, and the number of variable inputs increases as we lengthen our planning horizon from short run to long run. What happens to the labor demand curve as we move from short run to long run?