Chapter 9 Self-test questions

In the long run:

all inputs are variable.

all inputs except capital are variable.

all inputs except land are variable.

all inputs except land and capital are variable.

In the short run, with only one variable input, the firm's demand for that input is negatively sloped due to:

decreasing returns to scale.

economies of scope.

the law of diminishing returns.

the law of demand.

Bricks and breeze blocks can both be used for constructing the walls of buildings, but only glass is used for windows. It follows that:

the elasticity of demand for glass will be higher than the elasticity of demand for bricks.

the elasticity of demand for breeze blocks will be higher than the elasticity of demand for glass.

windows were smaller in the past when glass was cheaper.

none of the options given is correct.

Which of the following is not an influence on the supply of labour?

The proportion of the population who are retired.

Immigration.

Emigration.

The amount of overtime available.

If labour accounts for 50 per cent of the total costs of running a factory, and raw materials account for a further 25 per cent of total costs, which of the following will have the biggest impact on the total cost of running the factory?

A 15 per cent increase in wages (and no increase in electricity prices).

A 30 per cent increase in raw materials prices (and no increase in wages).

A 10 per cent increase in wages and raw materials prices.

All of the options given will have the same effect.

Profit maximization requires equating:

the marginal physical product of each input and that input's price.

the marginal revenue product of each input and that input's price.

the marginal revenue of each output and the relevant input's price.

the marginal physical product of each input and the quantity of output.

The size distribution of income refers to:

the proportion of total income received by various groups of households in an economy.

the division of income between the providers of land, labour, and capital.

whether total income in the economy is rising or falling.

none of the options given is correct.

A Giffen good is a final good for which the demand increases as its price increases. Inputs for which demand increases as the input's price increases:

are only found among natural resources.

are therefore known as Giffen inputs.

do not exist.

also exist, but do not have a specific name.

If a profit-maximizing firm uses two inputs A and B, which have marginal physical products MPP_A and MPP_B and prices p_A and p_B then in equilibrium the firm will operate so that:

MPP_A ÷ MPP_B = p_A ÷ p_B

MPP_A - MPP_B = p_A - p_B

MPP_A ÷ MPP_B = p_B ÷ p_A

MPP_A * p_A = MPP_B * p_B

Mobility of inputs in the long run will tend to eliminate:

both equilibrium and disequilibrium differentials.

equilibrium differentials but not disequilibrium differentials.

disequilibrium differentials but not equilibrium differentials.

neither equilibrium nor disequilibrium differentials.

A backward-bending labour supply curve means that:

as the wage rate increases continuously, the quantity of labour supplied rises to a maximum and then falls again.

as the wage rate increases continuously, the quantity of labour supplied falls to a minimum and then rises again.

as the quantity of labour supplied increases continuously, the equilibrium wage rate rises to a maximum and then falls again.

as the wage rate increases continuously, the substitution effect eventually outweighs the income effect.

Which of the following is true?

Both the labour force as a whole, and individual members of it, are highly mobile.

The labour force as a whole is mobile, even though many individual members of it are not.

Many individual members of the labour force are mobile, but the labour force as a whole is not.

Neither the labour force as a whole, nor individual members of it, are very mobile.

The owner of an input will always move it from its present use to another use if the amount the input earns from its present use falls below its:

rental price.

opportunity cost.

conservation price.

reservation price.

If a unit of labour costs £9 and the price of the firm's output is £5, then a profit-maximizing firm will employ labour up to the point where its marginal physical product is:

5/9 units of output.

9/5 units of output.

4 units of output.

9 units of output.

Consider a firm which uses two inputs, with unit prices p₁ = 6 and p₂ = 10. If the marginal physical product of input one is 30, and the firm is maximizing profit, then the marginal physical product of input two must be:

0.02

18

26

50

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