AP Microeconomics: Unit 5 Review

A firm’s demand curve for labor is equal to a segment of its

• average variable cost curve

• total revenue curve

• marginal cost curve

• marginal revenue product curve

• average product curve

The graph above shows the marginal revenue product curve and supply curve of labor for a firm. The introduction of new management techniques dramatically increases workers productivity. Which of the following changes is most likely to occur?

• The supply curve will shift to the left, increasing the wage rate.

• The supply curve will shift to the right, increasing employment.

• The marginal revenue product curve will shift to the right, increasing wage rate.

• The marginal revenue product curve will shift to the left, reducing employment.

• Neither the marginal revenue product curve nor the supply curve will shift, but the wage will increase and employment will fall.

Which of the following is most likely to shift the demand for aircraft mechanics to the right?

• An increase in the demand for air travel

• An increase in the price of a license necessary for aircraft mechanics

• A decrease in the price of a license necessary for aircraft mechanics

• A decrease in the demand for air travel

• A decrease in the marginal productivity of aircraft mechanics

A profit-maximizing firm will hire

• labor until its wage rate equals its average revenue product

• labor until its wage rate equals its marginal revenue product

• labor until its wage rate equals the interest rate

• capital until the interest rate equals the wage rate

• capital until the interest rate exceeds the wage rate

Assume a firm uses only two inputs, capital (K) and labor (L), to produce its output. Let the marginal product of capital be MPK , the marginal product of labor be MPL , the price of capital be PK , and the price of labor be PL . The least-cost combination of capital and labor needed to produce a given level of output is given by which of the following?

• MPL /PL = MPK /PK

• MPL /PL > MPK /PK

• MPL /PK = MPK /PL

• (MPL)PL = (MPK)PK

• MPL = MPK

Marginal revenue product is defined as the

• change in income that occurs when an individual works additional hours

• change in total revenue that occurs when one additional unit of the good is produced

• change in total revenue that occurs when one additional unit of an input is employed

• total revenue divided by the quantity of labor employed

• change in total cost that occurs when one additional unit of an input is employed

For a firm hiring labor in a perfectly competitive labor market, the marginal revenue product curve slopes downward after some point because as more of a factor is employed, which of the following declines?

• Marginal product

• Marginal factor cost

• Marginal cost

• Total output

• Wage rates

Assume that a firm is hiring labor in a perfectly competitive labor market. If the marginal revenue product of labor is greater than the wage rate, which of the following will be true?

• The firm must be losing money.

• The firm should employ more workers.

• The firm should replace workers with capital.

• The firm is maximizing its profits.

• The firm is experiencing diminishing marginal utility.

The wage rate is $10 per hour and the last worker hired by the firm increased output by 100 units. Computers rent for $100 per hour and the last computer rented by the firm increased output by 2,000 units. To minimize costs the firm should

• hire more workers and rent more computers because the marginal revenue products of both workers and computers are greater than their respective prices.

• hire more workers and reduce the number of computers rented because workers are cheaper than computers

• lay off workers and rent more computers because computers produce more output per dollar of additional expenditure

• lay off workers and rent more computers because computers produce more output

• keep the same number of workers and computers because the marginal revenue products of both workers and computers are positive

An increase in the demand for automobiles will cause the demand for skilled automobile workers and the wage rate of skilled automobile workers to change in which of the following ways?

• Demand - Decrease; Wage Rate - Increase

• Demand - Decrease; Wage Rate - Not Change

• Demand - Increase; Wage Rate - Decrease

• Demand - Increase; Wage Rate - Increase

• Demand - Not Change; Wage Rate - Increase