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1. Resource pricing is important because: A. resource prices are a major determinant of money incomes.B. resource prices allocate scarce resources among alternative uses.C. resource prices, along with resource productivity, are important to firms in minimizing their costs.D. of all of these reasons.2. Which of the following statements best illustrates the concept of derived demand? A. As income goes up the demand for farm products will increase by a smaller relative amount.B. A decline in the price of margarine will reduce the demand for butter.C. A decline in the demand for shoes will cause the demand for leather to decline.D. When the price of gasoline goes up, the demand for motor oil will decline.3. When economists say that the demand for labor is a derived demand, they mean that it is: A. dependent on government expenditures for public goods and services.B. related to the demand for the product or service labor is producing.C. based on the desire of businesses to exploit labor by paying below equilibrium wage rates.D. based on the assumption that workers are trying to maximize their money incomes.4. In the United States professional football players earn much higher incomes than professional soccer players. This occurs because: A. most football players are good soccer players while the reverse is not true.B. consumers have a greater demand for football games than for soccer games.C. football and soccer games are highly substitutable products for most consumers.D. the marginal productivity of soccer players exceeds that of football players.5. Marginal revenue product measures the: A. amount by which the extra production of one more worker increases a firm’s total revenue.B. decline in product price that a firm must accept to sell the extra output of one more worker.C. increase in total resource cost resulting from the hire of one extra unit of a resource.D. increase in total revenue resulting from the production of one more unit of a product.6. The marginal revenue product schedule is: A. the same whether the firm is selling in a purely competitive or imperfectly competitive market.B. the firm’s resource demand schedule.C. the firm’s resource supply schedule.D. upsloping.7. The purely competitive employer of resource A will maximize the profits from A by equating the: A. price of A with the MRP of A.B. marginal productivity of A with the MRC of A.C. marginal productivity of A with the price of A.D. price of A with the MRC of A.8 A competitive employer should hire additional labor as long as: A. the MRP exceeds the wage rate.B. the wage rate is less than MP.C. average product exceeds MP.D. MC exceeds MR.9. A firm will find it profitable to hire workers up to the point at which their: A. marginal resource cost equals their wage rate.B. wage rate equals product price.C. MP is equal to their MRP.D. marginal resource cost is equal to their MRP. 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.10. Refer to the above data. How many units of output are produced when 2 workers are employed? A. 4B. 16C. 24D. 1011. Refer to the above data. What is the marginal product of the sixth worker? A. 2 unitsB. 3 unitsC. 4 unitsD. 5 units12. Refer to the above data. At what price does each shoe shine sell? A. $1B. $2C. $3D. $2.5013. Refer to the above data. If the wage rate is $11, how many workers will Manfred hire to maximize profits? A. 1B. 2C. 3D. 514. Refer to the above data. If Manfred’s only fixed input is capital, the total cost of which is $30, then what will be his economic profit? A. $62B. $42C. $28D. $3215. Assuming a firm is selling its output in a purely competitive market, its resource demand curve can be determined by: A. multiplying total product by product price.B. multiplying marginal product by product price.C. dividing total revenue by marginal product.D. comparing marginal product with various possible input prices.16. The change in a firm’s total revenue that results from the hire of an additional worker is measured by: A. marginal product.B. marginal revenue.C. marginal revenue product.D. average revenue product. 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.17. Refer to the above information. The marginal product of the second worker is: A. 24.B. 8.C. 5.D. 1.18. Refer to the above information. The marginal revenue product of the second worker is: A. $24.B. $8.C. $15.D. $9.19. Refer to the above information. How many workers should the farmer hire? A. 1B. 2C. 3D. 420. Refer to the above information. What is the farmer’s profit-maximizing output? A. 20B. 32C. 37D. 4021. Real wages in the United States in the long run: A. show no discernible relationship to output per worker.B. have increased at about the same rate as increases in output per worker.C. have increased slower than increases in output per worker.D. have increased faster than increases in output per worker.22. If the nominal wages of carpenters rose by 5 percent in 2,000 and the price level increased by 3 percent, then the real wages of carpenters: A. decreased by 2 percent.B. increased by 2 percent.C. increased by 3 percent.D. increased by 8 percent.23. Increases in the productivity of labor result partly from: A. the law of diminishing returns.B. improvements in technology.C. reductions in wage rates.D. increases in the quantity of labor.24. The real wage will rise if the nominal wage: A. falls more rapidly than the general price level.B. increases at the same rate as labor productivity.C. increases more rapidly than the general price level.D. falls more rapidly than the general price level.25. The productivity and real wages of workers in the industrially advanced economies have risen historically partly because: A. workers have acquired less education and training over time.B. workers have been able to use larger quantities of capital equipment.C. over time the capital equipment used by workers has deteriorated in quality.D. the supply of labor has increased.26. Marginal resource cost refers to the: A. increase in total revenue resulting from the sale of the extra output of one more worker.B. price at which additional units of a resource can be hired in an imperfectly competitive resource market.C. increase in total cost resulting from the production of one more unit of output.D. amount by which a firm’s total resource cost increases as the result of hiring one more unit of the resource.27. If a firm is hiring a certain type of labor under purely competitive conditions: A. its labor demand curve will be perfectly elastic at the market-determined wage rate.B. the labor supply curve will lie above the marginal labor cost curve.C. the labor supply and marginal labor (resource) cost curves will coincide and be upsloping.D. the labor supply and marginal labor (resource) cost curves will coincide and be perfectly elastic.28. A 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: A. marginal revenue product is zero.B. marginal revenue product exceeds marginal resource (labor) cost by the greatest amount.C. marginal resource cost is zero.D. marginal revenue product equals marginal resource (labor) cost.29. A profit-maximizing firm will: A. expand employment if marginal revenue product exceeds marginal resource cost.B. reduce employment if marginal revenue product exceeds marginal resource cost.C. expand employment if marginal revenue product equals marginal resource cost.D. reduce employment if marginal revenue product equals marginal resource cost.30. A positive externality or spillover benefit occurs when: A. product differentiation increases the variety of products available to consumers.B. the benefits associated with a product exceed those accruing to people who consume it.C. a firm produces at the P = MC output.D. economic profits are zero in the long run.31. A negative externality or spillover cost occurs when: A. firms fail to achieve allocative efficiency.B. firms fail to achieve productive efficiency.C. price exceeds marginal cost.D. the total cost of producing a good exceeds the costs borne by the producer.32. Refer to the above diagram in which S is the market supply curve and S1 is a supply curve comprising all costs of production, including external costs. Assume that the number of people affected by these external costs is large. Without government interference, this market will result in: A. an optimal allocation of society’s resources.B. an underallocation of resources to this product.C. an overallocation of resources to this product.D. a higher price than is consistent with an optimal allocation of resources.33. Refer to the above diagrams for two separate product markets. Assume that society’s optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a) and from S to S2 in diagram (b). We can conclude that the government is correcting for: A. negative externalities in diagram (a) and positive externalities in diagram (b).B. positive externalities in diagram (a) and negative externalities in diagram (b).C. negative externalities in both diagrams.D. positive externalities in both diagrams.34. Refer to the above diagrams for two separate product markets. Assume that society’s optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a) and from S to S2 in diagram (b). The shift of the supply curve from S to S1 in diagram (a) might be caused by a per unit: A. subsidy paid to the producers of this product.B. tax on the producers of this product.C. subsidy paid to the buyers of this product.D. tax on the buyers of this product.35. The socially optimal amount of pollution abatement occurs where society’s marginal: A. benefit of abatement exceeds its marginal cost of abatement by the greatest amount.B. benefit of abatement equals its marginal cost of abatement.C. benefit of abatement is zero.D. cost of abatement is at its maximum.36. ESSAY QUESTION (15 POINTS)Make sure to make a good case as to why it is a negative externality. After you have made your case, I want you to propose two possible alternatives to help correct the negative externality. Do you want to abate (get rid of) the entire negative externality or is there an acceptable level of the externality that is best for all on the campus? Of the two options, which would you pick? Be creative and work on your own on this problem. What is the most interesting concept we have covered this semester and how will you use this concept in the future?
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