Micro Unit 5 AP Classroom MCQ Practice

In the long run, assume a firm uses both labor and capital to produce 25 units of output. The marginal product of the last unit of labor being employed is 100; the marginal product of the last unit of capital being employed is 500. The wage rate of labor is $10. If the firm is minimizing the cost of producing 25 units of output, what must be the unit price of capital?

• $5

• $10

• $25

• $50

• $500

Answer explanation

To minimize costs, the firm should equate the ratio of marginal products to the ratio of input prices. Thus, 100/$10 = 500/Pk. Solving gives Pk = $50, ensuring cost minimization.

Firm Z is producing 50 widgets using labor and capital. The marginal product of the last unit of labor employed is 500; the marginal product of the last unit of machinery (or capital) is 1000. The unit price of labor is $10, and the unit price of machinery or capital is $100. With competitive input markets, which of the following statements is true?

• The firm is minimizing the cost of producing 50 widgets with this combination of labor and capital.

• The marginal product of labor is 500 and the marginal product of capital is 1000, so the firm is employing too much labor and too few machines to produce the 50 widgets.

• The marginal product per dollar of labor exceeds the marginal product per dollar of machinery, so more labor and less capital should be used to produce the 50 widgets.

• The firm should lower the price of machinery so that it is equal to the price of labor.

• The firm is producing the given quantity inefficiently and should shut down.

Answer explanation

The marginal product per dollar of labor (50) exceeds that of capital (10), indicating that the firm should use more labor and less capital to minimize costs in producing 50 widgets.

Which of the following statements about the relationship between the demand for apple pickers and the demand for apples is true?

• An increase in the demand for apples increases the demand for apple pickers.

• An increase in the demand for apples increases the wage rate and decreases the demand for apple pickers.

• A decrease in the demand for apples decreases the wage rate and increases the demand for apple pickers.

• An increase in the demand for apples increases productivity and the demand for apple pickers.

• A decrease in the demand for apples decreases productivity and the demand for apple pickers.

Answer explanation

An increase in the demand for apples leads to a higher need for apple pickers to harvest the increased quantity, thus increasing the demand for apple pickers.

The demand curve for labor shows which of the following?

• The quantity of output each worker can produce at various wage rates

• The number of workers required to produce a given level of output

• The number of workers a firm is willing and able to hire at various wage rates

• The positive relationship between the wage rate and the number of hours people wish to work

• The number of workers who are willing and able to work at various wage rates

Answer explanation

The demand curve for labor illustrates the number of workers a firm is willing and able to hire at various wage rates, reflecting how wage changes influence hiring decisions.

Which of the following will occur when wage rates decrease in a given labor market?

• The supply of labor will decrease.

• The demand for labor will increase.

• The quantity supplied of labor will decrease.

• The quantity demanded of labor will decrease.

• The supply of labor will decrease and the demand for labor will increase.

Answer explanation

When wage rates decrease, workers are less willing to supply their labor, leading to a decrease in the quantity supplied of labor. This is because lower wages make work less attractive.

Based on the graph above, which of the following statements is true?

• Hiring unit of labor L0 will add $15 to a firm’s economic profits.

• The market wage rate is $10 per unit of labor.

• The profit-maximizing firm will hire its labor at less than $10 per unit.

• From 0 units of labor to L0 units of labor, there are increasing marginal returns to labor.

• Along the firm’s marginal revenue product of labor curve, the price of output falls as more labor is hired and more output is produced.

Answer explanation

The correct statement is that the market wage rate is $10 per unit of labor, as indicated in the graph. This reflects the equilibrium wage in the labor market, confirming the firm's hiring decisions.

Assuming a single, profit-maximizing employer in a labor market with many workers, which of the following statements relating to this monopsony is true?

• This single employer will hire more labor than if the market were perfectly competitive but will pay a lower wage.

• This single employer is a wage taker, needing to pay the equilibrium wage for the geographic area

• In increasing employment, the marginal factor cost of an additional unit of labor exceeds the wage rate paid to the laborer.

• The profit-maximizing monopsonist will hire the quantity of labor where the marginal revenue product of labor intersects the labor supply curve.

• The first workers hired are paid a higher wage than any additional workers hired by the monopsonist.

Answer explanation

A single buyer of labor services, a monopsonist, restricts the quantity of labor hired to the equality of the marginal revenue product of labor and the marginal factor cost of labor. The wage paid to the labor employed is found on the labor supply curve and will be less than the competitive wage. Within monopsony, to hire more labor the firm must raise the wage on all labor; as a result, the marginal factor cost of labor exceeds the wage rate.

Which of the following statements about the monopsonistic labor market shown in the accompanying graph is true?

• The single firm will hire L1 and pay each laborer a wage of W2.

• In this monopsonistic labor market when the single employer maximizes economic profits, there will be no deadweight loss.

• The profit-maximizing monopsonist will hire L0 labor and pay each laborer W1.

• When the single firm is maximizing profits, the marginal revenue product (MRP) of labor will exceed the marginal factor cost (MFC) of labor.

• The marginal factor cost (MFC) of labor with the competitive equilibrium exceeds the marginal factor cost of labor in monopsony.

Answer explanation

In a monopsonistic labor market, the firm maximizes profits by hiring L0 labor at wage W1, where the marginal revenue product of labor equals the marginal factor cost, leading to optimal employment without deadweight loss.

Which of the following statements about a monopsonistic labor market is true?

• Compared to the wage paid in a competitive labor market, the wage paid by a monopsonist is lower and the quantity of labor hired is lower.

• Since the single firm is a wage taker, the marginal factor cost of labor is equal to the wage rate.

• Since marginal revenue product equals marginal factor cost, this labor market is efficient with no deadweight loss.

• A legal minimum wage equal to the competitive wage would further reduce the employment of labor.

• As the firm hires more labor, the firm is able to pay each unit of labor a lower wage.

Answer explanation

In a monopsonistic labor market, the single employer has market power, leading to lower wages and reduced quantity of labor hired compared to a competitive market, making the first statement true.

Which of the following will cause an increase in the demand for labor?

• An increase in the wage rate

• An increase in the productivity of labor

• A decrease in the price of the product that labor is used to produce

• A decrease in the wage rate

• A decrease in the demand for the product produced by labor

Answer explanation

An increase in the productivity of labor means that workers can produce more output in the same amount of time, leading firms to demand more labor to maximize production and profits.