Econ 371 Sample Exam 2 Questions
1. According to the law of diminishing marginal returns:
a) the marginal product of labor is negative.
b) the average product of labor is negative.
c) as more labor is added to a fixed stock of capital, less output is produced.
d) as more labor is added to a fixed stock of capital, the marginal product of labor eventually will decline.
2. Suppose workers in labor market X are qualified to work in an alternative labor market Y and vice-versa. If an increase
in labor demand causes an increase in the wage rate to workers in market Y, this will tend to:
a) increase labor supply and reduce the wage rate in X.
b) increase labor demand and reduce the wage rate in X
c) reduce labor supply and increase the wage rate in X.
d) reduce labor demand and reduce the wage in X.
3. As a result of an increase in the market supply of labor, suppose the wage rate falls by 10%. After adjusting their
employment levels, firms in the market find that their total wage bills (=WxL) have increased. This result indicates that:
a) labor demand is inelastic over this range of wage rates.
b) labor demand is elastic over this range of wage rates.
c) labor demand, was inelastic at the old wage, but is elastic at the new, higher wage.
d) labor demand, was elastic at the old wage, but is inelastic at the new, higher wage.
4. A monopsonist tends to hire too _____ workers because:
a) few; marginal revenue product exceeds the value of marginal product.
b) few; marginal wage costs exceeds the wage rate.
c) many; marginal revenue product exceeds the value of marginal product.
d) many; marginal wage costs exceeds the wage rate.
Questions 5 - 7 refer to the table below.
Labor Output Price (D
1
) Price (D
2
)
0 0 $10.00 $10.00
1 15 10.00 9.50
2 29 10.00 9.00
3 42 10.00 8.50
4 54 10.00 7.50
5 65 10.00 6.50
6 75 10.00 5.50
5. Suppose product demand is given by the column labeled D
1
. The value of the marginal product of the fourth worker is
_____.
6. Suppose product demand is given by the column labeled D
1
. If the wage rate is $110, the firm will achieve maximum
profit by hiring _____ workers.
7. Suppose product demand is given by the column labeled D
2
. If the wage rate rises from $90 to $120, the firm will reduce
the quantity of labor employed by _____ unit(s).
Questions 8 and 9 refer to the following diagram.
