# Micro Chapter 14

Total word count: 1342
Pages: 5

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 The demand for airline pilots results from the demand for air travel. This fact is an example of the derived demand for labor Which of the following statements best illustrates the concept of derived demand A decline in the demand for shoes will cause the demand for leather to decline. A competitive employer should hire additional labor as long as: The MRP exceeds the wage rate In the United States professional football players earn much higher incomes than professional soccer players. This occurs because Consumers have a greater demand for football games than for soccer games Resource pricing is important because: 1. resource prices are a major determinant of money incomes 2. resources prices allocate scarce resources among alternative uses 3. resources prices, along with resource productivity, are important to firms in minimizing their costs The labor demand curve of a purely competitive seller: slope downward because of diminishing marginal productivity A firm will find it profitable to hire workers up to the point at which their: marginal resource cost is equal to their MRP A profit-maximizing firm employs resources to the point where: MRP = MRC 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: profits will be increased by hiring fewer workers The labor demand curve of an imperfectly competitive seller is downsloping: both because of diminishing returns and the necessity to lower price to sell more output A competitive employer is using labor in such an amount that labor’s MRP is \$10 and its wag rate is \$8. This firm: Should hire more labor because this will increase profits Which of the following will not cause a shift in the demand for resource X? a decline in the price of resource X A decline in the price of resource A will: increase the demand for complementary resource B Assume the price of capital falls relative to the price of labor and, as a result, the demand for labor increases. Therefore: the output effect is greater than the substitution effect Which of the following will not shift the demand curve for labor? a change in the wage rate Employers will hire more units of a resource if the: productivity of the resource increases Which of the following statements best illustrates the concept of derived demand? A decline in the demand for shoes will cause the demand for leather to decline. When economists say that the demand for labor is a derived demand, they mean that it is: related to the demand for the product or service labor is producing. The demand for airline pilots results from the demand for air travel. This fact is an example of: the derived demand for labor The demand for a resource depends primarily on: the demand for the product or service that it helps produce The marginal revenue product schedule is: the firm’s resource demand schedule The MRP curve for labor: is the firm’s labor demand curve also: is downsloping and shows the relationship between wage rates and the quantity of labor demanded The general rule for hiring any input (say, labor) in the profit-maximizing amount is MRC = MRP. This rule takes the special form W = MRP (where W is the wage rate) when the firm is hiring labor under purely competitive conditions Assuming a firm is selling its output in a purely competitive market, its resource demand curve can be determined by multiplying marginal product by product price Marginal resource cost is the increase in total resource cost associated with the hire of one more unit of the resource. The MRP curve is the resource demand curve for both the purely competitive and imperfectly competitive seller. If a firm is selling in an imperfectly competitive product market, then the marginal products of successive workers must be sold at lower prices. Other things equal, we would expect the labor demand curve of a monopolistic seller to: decline more rapidly than that of a purely competitive seller Suppose the demand for strawberries rises sharply, resulting in an increased price of strawberries. As it relates to strawberry pickers, we could expect the MRP curve to shift to the right Assume the price of capital falls relative to the price of labor and, as a result, the demand for labor increases. Therefore the output effect is greater than the substitution effect The labor demand curve of a firm will shift to the left if the price of the product the labor is producing falls Which of the following will not shift the demand curve for labor a change in the wage rate 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 less labor as a consequence of the output effect If resources A and B are complementary and employed in fixed proportions an increase in the price of A will decrease the demand for B Suppose capital and labor are used in fixed proportions so that each machine requires only one worker. If a decline in the price of capital occurs, then the demand for labor will increase solely because of the output effect The demand curve for labor would shift leftward as the result of a decrease in the productivity of labor 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 output effect If the price of capital declines, the consequent output effect would be greater, the more elastic the demand for the product Suppose the price of the product that labor is producing increases and simultaneously the price of capital, which is substitutable for labor, decreases. Assuming that the substitution effect is greater than the output effect, the demand for labor will decrease Which of the following occupations is not among the ten projected fastest growing U.S. occupations in terms of percentage increases school teachers Which of the following occupations is projected to be the fastest growing in the U.S. in terms of percentage increases biomedical engineers The fact that monopoly and monopsony exist in resource markets means that resource prices do not always measure contributions to output The marginal productivity theory of income distribution has been criticized because income from inherited property is inconsistent with the theory According to the Consider This box "Superstars," the high pay of superstars reflects high marginal revenue productivit Marginal revenue product (MRP) of labor refers to the increase in total revenue resulting from the hire of one more unit of labor. Marginal resource cost refers to the amount by which a firm’s total resource cost increases as the result of hiring one more unit of the resource If a firm is hiring a certain type of labor under purely competitive conditions the labor supply and marginal labor (resource) cost curves will coincide and be perfectly elastic The market supply curve for labor is upsloping because of the opportunity cost of labor in housekeeping, leisure, or alternative employment firm that is hiring labor in a purely competitive labor market and selling its product in a purely competitive product market will maximize its profit by hiring labor until marginal revenue product equals marginal resource (labor) cost A profit-maximizing firm will expand employment if marginal revenue product exceeds marginal resource cost Indicate how the following events will shift the firm’s demand curve for labor: increase it ( I ); decrease it ( D ); keep it the same ( S ) 1. ___ Technological advances increase labor’s productivity. 2. ___ The wage rate increases. 3. ___ The demand for the product that labor produces decrease 4. ___ The wage rate decreases. 5. ___ Absenteeism reduces labor’s productivity. 6. ___ The price of labor-saving machinery is reduced and the substitution effect is greater than the output effect 1. I (Increase it) 2. S (Keeps it the same) 3. D (Decrease it) 4. S (Keeps it the same) 5. D (Decrease it) 6. D (Decrease it)

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