Question

1.

If the marginal product is _____, the value of marginal product must be _____.

Select one:

a. rising; zero

b. falling; falling

c. rising; falling

d. falling; rising

2.

The amount by which an additional unit of a factor increases a firm's total _____ during a period is the _____.

Select one:

a. cost; value of marginal product

b. revenue; marginal factor cost

c. cost; marginal product

d. revenue; value of the marginal product

3.

The demand for factors of production is called a derived demand because it is:

Select one:

a. derived from the demand for the outputs that are produced by the factors of production.

b. not easy to determine and must be derived by a technical (and often complicated) process.

c. derived on the basis of questions posed to residents during the census.

d. derived from the available supply of factors, such as land, that can be overexploited.

4.

A firm's demand curve for labor is:

Select one:

a. its marginal cost curve.

b. its marginal product curve.

c. its value of the marginal product of labor curve.

d. horizontal if it is in perfect competition.

5.

When a firm is a perfect competitor in the product market, its demand curve for labor will _____ because the _____ product declines as additional workers are hired.

Select one:

a. slope downward; marginal

b. be horizontal; average

c. slope downward; average

d. slope upward; marginal

Answer 1

Answer

1.b. falling ; falling

If the marginal product is falling, the value of marginal product must be falling.

The marginal product (MP) is the change in total product due to change in one additional unit of the variable factor like, labor. The value of MP is the product of price of the good or services and the MP ( P * MP). So the price of the goods or services remain constant, if the marginal product falls, then the value of the marginal product will also fall.

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2.d. revenue ; value of the marginal product

The amount by which an additional unit of a factor increases a firm's total revenue during a period is the value of the marginal product.

Total revenue (TR) is the product of the quantity(Q) of the goods and its price(P).

Or, TR = P * Q

Value of the marginal product is the product of the price of the goods and the marginal product (MP) of the factor( P * MP).

Marginal product is the change in total product or quantity (Q) due to change in one additional unit of factor, say L.

MP = Q / L , where '' stands for change.

Value of MP = P * (Q / L)

Keeping price of the goods constant, increase in total revenue means increase in Q. So the total revenue will increase if an additional unit of factor, L increases Q, i.e.,Q / L is positive [(Q / L) > 0] and greater than one [(Q / L) > 1] .

So, the amount by which an additional unit of a factor increases a firm's total revenue during a period is just the value of the marginal product of the factor.

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3. a. derived from the demand for the outputs that are produced by the factors of production

The demand for factors of production is called a derived demand because it is derived from the demand for the outputs that are produced by the factors of production.

the producer needs the factors of production to produce the goods. The amount of factor the producer needs in production depends on the demand for the goods the producer is producing. Higher the demand for the good, higher will be the demand for the factors of production of that good. Lower the demand for the good, lower will be the demand for the factors of production of the good.So the demand for a factor of production is derived from the demand for the final good that factor is producing.

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4. c. its value of the marginal product of labor curve.

A firm's demand curve for labor is its value of the marginal product of labor curve.

Value of the marginal product of labor (MP_L) = VMRP_L = MR * MP_L , where MR = Marginal revenue

The profit maximizing firm hires that amount of workers or labor for which the wage(W) equals the MRP_L.

Now the demand for labor depends on the wage rate of labor. Higher the wage rate, lower will be the demand for labor. So the labor demand curve is negatively sloped. Now in short-run, with at least one input fixed, as the employment of labor rises, MP_L declines. So the MRP_L also declines. So there is a negative relationship between MRP_L and the number of workers employed. We get here a negatively sloped MRP_L curve. This MRP_L curve represents the demand curve for labor.

In the above figure, the MRP_L curve is the labor demand curve.

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5.a. slope downward ; marginal

When a firm is a perfect competitor in the product market, its demand curve for labor will slope downward because the marginal product declines as additional workers are hired.

The marginal product of labor declines with the employment of additional workers ,keeping at least one factor of production constant. As the demand for labor depends on its productivity, so the demand curve for labor is downward sloping.

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