1. All types of firms demand resources or factors of production as long as people demand the goods they produce. The additional revenue generated by employing an additional factor unit is called

a. marginal revenue.
b. marginal physical product.
c. marginal revenue product.
d. marginal opportunity cost.
e. none of the above.

2. The marginal revenue product of a factor of production can be computed as

a. TR/ quantity of factor.
b. TR/ quantity of output.
c. ( TR/ quantity of output) x ( quantity of output/ quantity of factor).
d. MR x MPP.
e. all of the above, except (b).

Table 26.1

Quantity of Factor X (1)	Quantity of Output (2)	Marginal Physical Product (3)	Total Revenue (4)	Marginal Revenue (5)	Marginal Revenue Product (6)
0	100	--		--	--
5	400
10	600
15	700
20	750

3. Consider Table 26.1. It provides selected data for a perfectly competitive firm that is using factor X, along with fixed amounts of other factors of production, to produce a good that sells for $2 per unit. Which of the following statements about this firm is correct?

a. The missing entries in column (3) are 300, 200, 100, 50.
b. The missing entries in column (4) are $200, $800, $1,200, $1,400, $1,500.
c. The missing entries in column (5) are $600, $400, $200, $100.
d. The missing entries in column (6) are $180,000 and $80,000 and $20,000 and $5,000.
e. All of the above.

4. Consider Table 26.1. It provides selected data for a perfectly competitive firm that is using factor X, along with fixed amounts of other factors of production, to produce a good that sells for $2 per unit. Which of the following statements about this firm is correct?

a. The missing entries in column (3) are 60, 40, 20, 10.
b. The missing entries in column (4) are $200, $800, $1,200, $1,400, $1,500.
c. The missing entries in column (5) are $2, $2, $2, $2.
d. The missing entries in column (6) are $120, $80, $40, $20.
e. All of the above statements are correct.

5. Consider Table 26.1. It provides selected data for a perfectly competitive firm that is using factor X, along with fixed amounts of other factors of production, to produce a good that sells for $2 per unit. In order to view the firm's factor demand curve, one would

a. plot the data of column (1) on the vertical axis against those of column (2) on the horizontal axis.
b. plot the data of column (1) on the vertical axis against those of column (3) on the horizontal axis.
c. plot the data of column (1) on the vertical axis against those of column (4) on the horizontal axis.
d. plot the data of column (1) on the vertical axis against those of column (5) on the horizontal axis.
e. do none of the above.

6. Consider Table 26.1. It provides selected data for a perfectly competitive firm that is using factor X, along with fixed amounts of other factors of production, to produce a good that sells for $2 per unit. In order to view the firm's factor demand curve, one would

a. plot the data of column (2) on the vertical axis against those of column (1) on the horizontal axis.
b. plot the data of column (3) on the vertical axis against those of column (1) on the horizontal axis.
c. plot the data of column (4) on the vertical axis against those of column (1) on the horizontal axis.
d. plot the data of column (5) on the vertical axis against those of column (1) on the horizontal axis.
e. plot the data of column (6) on the vertical axis against those of column (1) on the horizontal axis.

7. Which of the following statements about perfectly competitive firms is correct?

a. MRP = MR x MPP.
b. MRP = P x MPP.
c. VMP = P x MPP.
d. All of the above statements are correct.
e. None of the above statements is correct.

8. Which of the following statements correctly characterizes price searchers, that is, monopolists, monopolistic competitors, and oligopolists?

a. Their factor demand curves are downward-sloping for two reasons: the law of diminishing returns (which reduces MPP as more of a factor is used) and the law of demand (which implies that additional output produced by additional factor use can only be sold at a lower price; hence MR < P).
b. Their factor demand curves are downward-sloping because their value marginal product (VMP) equals marginal revenue times marginal physical product.
c. Their factor demand curves are downward-sloping because their value marginal product (VMP) falls short of marginal revenue times marginal physical product.
d. Their factor demand curves are downward-sloping because their marginal factor cost equals their marginal revenue product.
e. Their factor demand curves are downward-sloping because their marginal factor cost exceeds their marginal revenue product.

9. In order to maximize profit, every type of firm is well advised to purchase and employ that quantity of any factor of production at which

a. MRP = VMP.
b. MRP = MFC.
c. VMP = MFC.
d. P x MPP = MFC.
e. P x MPP = MR.

10. A perfectly competitive firm is buying labor at $8 per hour and uses it to produce apples that sell for $5 per bushel. In order to maximize profit, this firm is well advised

a. to hire additional units of labor if labor's marginal physical product equals 1 bushel.
b. to hire fewer units of labor if labor's marginal physical product equals 10 bushels.
c. to hire additional units of labor as long as MPP < wage / price.
d. to hire additional units of labor as long as MPP > wage / price.
e. to hire additional units of labor as long as MPP x wage > price.

11. A firm is producing a given quantity of output by using labor, L, and capital, K. The marginal physical product of labor equals 5 bushels, while that of capital equals 10 bushels. In order to maximize its profit,

a. this firm should use less labor and more capital, provided the price of labor was $20, while the price of capital was $40.
b. this firm should use more labor and less capital, provided the price of labor was $20, while the price of capital was $40.
c. this firm should use less labor and more capital, provided the price of labor was $40, while the price of capital was $20.
d. this firm should use more labor and less capital, provided the price of labor was $40, while the price of capital was $20.
e. this firm should use less labor (raising MPP_L) and more capital (lowering MPP_K) until the two MPPs are equalized.

12. Consider Figure 26.1. It pictures the situation of a firm in the labor market. Which of the following statements about his firm is correct?

a. This firm is facing a wage of 0C that it cannot influence.
b. This firm may well be a perfectly competitive buyer in the labor market.
c. This firm may well be a monopolistically competitive seller in its product market.
d. This firm may well be an oligopolist or even a monopolist in the product market.
e. All of these statements are correct.

13. Consider Figure 26.1. It pictures the situation of a firm in the labor market. Which of the following statements about this profit-maximizing firm is correct?

a. It will hire a labor quantity 0F.
b. It will incur total labor costs of 0CEG.
c. It will take in total revenue of 0CDG.
d. It will earn a total profit of DEG.
e. Only statements (b) through (d) are correct.

14. Consider Figure 26.1. It pictures the situation of a firm in the labor market. Which of the following statements about this profit-maximizing firm is correct?

a. It will hire labor quantity 0F in order to equate MRP with MFC.
b. It will hire more labor whenever (MR x MPP) > MFC.
c. It will hire less labor whenever MPP < (MFC/MR).
d. All of the above statements are correct.
e. None of the above statements is correct.

15. Consider Figure 26.1. It pictures the situation of a firm in the labor market. Which of the following statements about this profit-maximizing firm is correct?

a. When this firm hires profit-maximizing labor quantity 0F, the output produced by the last unit of labor hired is worth BF.
b. When this firm hires profit-maximizing labor quantity 0F, the output produced by the last unit of labor hired is worth DF.
c. When this firm hires profit-maximizing labor quantity 0G, the output produced by the last unit of labor hired is worth EG.
d. When this firm hires profit-maximizing labor quantity 0G, the output produced by the last unit of labor hired is worth zero dollars (note point G), which explains why this is the last unit of labor hired.
e. In response to a higher or lower market wage, this firm will hire labor quantities along the VMP line, such as quantity 0G at wage 0C.

16. Consider Figure 26.1. It pictures the situation of a firm in the labor market. Which of the following statements about this profit-maximizing firm is false?

a. Ceteris paribus, an increase in the demand for this firm's product will shift the VMP and MRP lines vertically up and to the right, causing the firm to hire more labor (in accordance with the new MFC and MRP intersection).
b. Ceteris paribus, an increase in the demand for this firm's product will shift the VMP and MRP lines vertically up and to the right, causing the firm to hire more labor (in accordance with the new MFC and VMP intersection).
c. Ceteris paribus, a decrease in the demand for this firm's product will shift the VMP and MRP lines vertically down and to the left, causing the firm to hire less labor (in accordance with the new MFC and MRP intersection).
d. Ceteris paribus, a technical advance that raises workers' MPP will shift the VMP and MRP lines vertically up and to the right, causing the firm to hire more labor (in accordance with the new MFC and MRP intersection).
e. Ceteris paribus, a loss of capital equipment that lowers workers' MPP will shift the VMP and MRP lines vertically down and to the left, causing the firm to hire less labor (in accordance with the new MFC and MRP intersection).

17. If wages equal $10 per labor unit in country A and $1 per labor unit in country B,

a. firms will naturally hire the labor of country B in order to keep their costs down.
b. firms may well hire the labor of country A in order to keep their costs down.
c. firms will prefer A labor to B labor, provided MPP_A > MPP_B.
d. firms will prefer B labor to A labor, provided MPP_A = 20 x MPP_B.
e. firms will prefer A labor to B labor, provided MPP_B > MPP_A.

18. Which of the following statements about the elasticity of demand for labor is false?

a. This elasticity equals the percentage change in the wage rate divided by the associated percentage change in the labor quantity demanded.
b. The higher is the elasticity of demand for a product, the higher is the elasticity of demand for the labor that produces this product.
c. The lower is the ratio of labor cost to total cost, the lower is the elasticity of demand for labor.
d. The more substitutes there are for labor, the higher is the elasticity of demand for labor.
e. The fewer substitutes there are for labor, the lower is the elasticity of demand for labor.

19. Which of the following factors will not change the supply of labor in a particular labor market?

a. An increase in wage rates in other labor markets.
b. A decrease in wage rates in other labor markets.
c. An increase in this market's wage rate.
d. An increase in the unpleasantness of jobs in this market.
e. An increase in the number of persons who can do the job traded in this market.

20. "In time, wage differentials among different labor markets will be completely eliminated through the movement of labor from low-wage to high wage markets." The preceding claim depends crucially on all of the following, except:

a. All labor is mobile at zero cost.
b. All labor is homogeneous or can costlessly be trained for different types of jobs.
c. The demand for every type of labor is identical.
d. The process known as screening, through which employers increase the probability of choosing "good" employees by consulting certain criteria, is outlawed.
e. There are no special nonpecuniary aspects to any job.