CED 5-6 Review

Assume that firms providing health-care services to older people operate in a perfectly competitive market. What must happen in the market for health-care workers if there is an increase in the number of older people in a country?

• The demand for health-care workers will increase.

• The marginal factor cost in the health-care industry will decrease.

• The number of health-care workers will decrease.

• The quality of health-care services will increase.

• The wages of health-care workers will decrease.

The table shows the total cost and the total benefit of cleaning pollution. Which cleanup levels is socially optimal?

• 1

• 2

• 3

• 4

• 5

Antitrust laws are designed to maintain a competitive market environment by 

• eliminating monopolies wherever they exist 

• preventing monopolies from generating negative externalities 

• limiting practices that increase a firm’s market power 

• imposing price ceilings on products produced by monopolies 

• making charging a price above marginal cost illegal Unauthorized 

The Lorenz curve represents the relationship between 

• the cumulative percent of households and the cumulative percent of income 

• income tax rates and income tax revenues 

• child labor rates and the poverty levels 

• income inequality and education level 

• market structure and the number of firms in the market 

The table above shows how a firm’s hourly level of output changes as more of the labor input is employed. The firm sells its output and hires labor in perfectly competitive markets. The wage paid to labor is $10 per hour, and the price of the firm’s output is $2 per unit. Based on the data in the table, the marginal revenue product of the fourth hour of labor is equal to

• $4

• $7

• $14

• $26

• $70

A perfectly competitive firm currently produces 1,000 units of output and hires its resources in a perfectly competitive factor market. It uses both labor and capital as inputs. The price of labor is $40; the price of capital is $100. The marginal product of labor is 8 units, and the marginal product of capital is 10 units. Which of the following must be true?

• The firm is currently maximizing its profit.

• The firm can produce more than 1,000 units without increasing the total cost if it uses more labor and less capital.

• The firm can produce more than 1,000 units without increasing the total cost if it uses more capital and less labor.

• The firm can reduce the cost of producing 1,000 units by using less capital and employing the same amount of labor.

• The firm can reduce the cost of producing 1,000 units by employing less labor and using the same amount of capital.

Which of the following is true of a monopsony in a labor market?

• It faces a labor supply curve that is horizontal at the competitive market equilibrium wage.

• Its marginal factor (resource) cost is the same as the market supply curve.

• At its optimal level of employment, it pays a wage rate higher than the competitive market wage rate.

• The imposition of a minimum wage results in a larger reduction in employment than is true in a competitive market.

• Its marginal factor (resource) cost curve lies above the labor supply curve because hiring an extra worker means paying more to existing workers.

Which of the following indicates that a perfectly competitive firm has hired the profit-maximizing amount of labor?

• The total product of labor exceeds the total real wage payments to workers.

• The average product of labor exceeds the real wage paid to workers.

• The marginal revenue product of labor is below the wage paid to workers.

• The marginal revenue product of labor is above the wage paid to workers.

• The marginal revenue product of labor equals the wage paid to workers.

In a competitive market in which the production of a good causes pollution, the socially optimal output is different from the competitive market equilibrium output of that good because the

• marginal social benefit is higher than the marginal social cost

• marginal social benefit is lower than the marginal private cost

• marginal social cost is higher than the marginal private cost

• marginal social benefit is higher than the marginal private benefit

• total social cost is less than the total social benefit

Assume accountants and teachers have identical marginal revenue product schedules. Which of the following provides an explanation for why accountants receive higher starting salaries than school teachers?

• Accountants have less human capital than school teachers.

• Accountants have lower opportunity cost than school teachers.

• Accounting firms provide a more pleasant work environment than schools provide.

• The supply of accountants is low relative to the supply of teachers.

• Fewer teaching majors graduate from college each year than accounting majors.