Test Bank For Labour Market Economics 8Th Canadian Edition By Dwayne Benjamin

Chapter 05

Demand for Labour in Competitive Labour Markets

Multiple Choice Questions
The figures below give the production schedule and the product demand schedule for a firm, which has to decide how many workers to hire.

Workers hired

Total Physical Product

Price of output

0

0

$10

1

10

$10

2

18

$10

3

25

$10

4

30

$10

5

34

$10

6

37

$10

1. If the wage = $40 for the time period in question, then the number of workers hired is:
A. 2
B. 3
C. 4
D. 5
E. 6

Blooms: Analyze
Difficulty: Medium
Learning Objective: 05-01 Understand how firms decide how much labour they need to employ to produce a certain amount of goods or services. The theory of labour demand provides the tools required to understand how firms make these decisions.
Learning Objective: 05-02 Labour demand decisions are made both simultaneously with other input decisions, and after factories and machines have been built. Learn how labour demand decisions differ in these two circumstances, that is, in the short run versus the long run.
Topic: 05-02 Demand for Labour in the Short Run
Topic: 05-03 Wages, the Marginal Productivity of Labour, and Competition in the Product Market

2. Assume that at the wage rate of $10 per hour, a firm is hiring 100 hours of labour per week. If the wage elasticity of demand is -1.2, how many hours of labour will the firm shed if the wage increases by $2 per hour?
A. 5 hours per week
B. 12 hours per week
C. 20 hours per week
D. 24 hours per week
E. 36 hours per week

Blooms: Analyze
Difficulty: Medium
Learning Objective: 05-04 Learn about the factors that affect the elasticity of demand for labour. For example, does it matter whether a firm operates as a monopolist or a perfect competitor in the product market?
Topic: 05-10 Elasticity of Demand for Labour

3. Consider the model for the derivation of demand for labour in a long-run context. At equilibrium, which of the following statements is false?
A. A profit-maximizing firm will choose the cheapest capital-labour combination that yields the optimal output.
B. At the optimal level of output, labour is cheaper than capital.
C. If labour is twice as expensive per unit than capital, then the marginal product of labour is twice as large as the marginal product of capital.
D. If the firm were to alter its input combination by hiring more or less of a factor, its profits would fall.
E. The slope of the isoquant is equal to the slope of the isocost line.

Blooms: Understand
Difficulty: Medium
Learning Objective: 05-02 Labour demand decisions are made both simultaneously with other input decisions, and after factories and machines have been built. Learn how labour demand decisions differ in these two circumstances, that is, in the short run versus the long run.
Topic: 05-04 Demand for Labour in the Long Run

4. The primary reason why workers in the fast-food industry are paid less is that:
A. The demand for the product that they produce is quite elastic, making the demand for labour wage elastic.
B. It is easy to substitute capital for labour in the industry, making the demand for labour wage elastic.
C. Labour costs comprise a large share of the employer’s expenses, making the demand for labour wage inelastic.
D. These workers collect economic rents.
E. These workers are seldom unionized.

Blooms: Apply
Difficulty: Hard
Learning Objective: 05-04 Learn about the factors that affect the elasticity of demand for labour. For example, does it matter whether a firm operates as a monopolist or a perfect competitor in the product market?
Topic: 05-13 Elasticity of Demand for Output

5. If the employer is a monopolist in the output market:
A. There is monopsony in the input market.
B. The demand for labour is less elastic than it would be if the firm operated in a competitive output market.
C. The demand for labour is less elastic than it would be if the firm operated in a competitive input market.
D. The firm’s demand curve for labour is identical to the case where the firm is a competitor in the output market.
E. None of the above choices are correct.

Blooms: Understand
Difficulty: Medium
Learning Objective: 05-04 Learn about the factors that affect the elasticity of demand for labour. For example, does it matter whether a firm operates as a monopolist or a perfect competitor in the product market?
Topic: 05-10 Elasticity of Demand for Labour