1. the marginal productivity of labour increases with the quantity of capital

2. the substitution effect is greater than the income effect

3. The marginal productivity of capital declines with the quantity of capital

4. the level of output associated with any quantity of capital declines with the quantity of labour employed

5. none of the above

42. Which of the following will happen in the labor market if the price of the good produced by the workers decreases?

1. The marginal product of labor will increase.

2. The marginal product of labor will decrease.

3. The marginal revenue product of labor will increase.

4. The marginal revenue product of labor will decrease.

5. The demand curve for labor will shift to the right

43. A, B, and C are inputs employed to produce good X. If the quantity of A used were increased, we would ordinarily expect A's marginal product to

1. increase, in all circumstances.

2. increase if the quantities of B and C are left unchanged, but not necessarily to increase if B and C quantities are also in­creased.

3. decrease, in all circumstances.

4. Decrease if the quantities of b and c are left unchanged, but not necessarily to decrease if b and c quantities are also increased.

5. decrease if B and C quantities are also increased, increase if B and C quantities are left un­changed.

44. Labour demand increases if:

1. Demand for the product increases

2. Labour becomes more productive, either with more resources available, better technology or a higher quality workforce

3. The price of a substitute resource falls and the substitution effect is more than the income effect (output effect)

1. I only

2. I and II

3. I and III

4. I, II and III

5. Another combination of answers is correct

45. Diminishing marginal product means that hiring an additional worker will:

1. cause total output to diminish.

2. result in negative marginal product.

3. cause marginal product to increase, but at a decreasing rate.

4. Cause a reduction in marginal product.

5. none of the above.

46. A perfectly competitive firm sells its product for $50. If the firm hires an additional worker, output would increase from 100 to 110 units. The marginal revenue product for this worker is

1. $5,500

2. $5,000

3. $500

4. 110 units

5. 10 units

Output	Price	Units of Labour
10	2.5$	1
15	2$	2
20	1$	3

Based on the table above if the wage paid for a unit of labor in a perfectly competitive labour market is $4 per hour, what is the profit-maximizing number of units of labor is

1. 0

2. 1

3. 2

4. 3

5. The answer cannot be determined from the information given.

48. Assume that the government imposes a minimum wage in labor markets where the equilibrium wage had been below the new minimum. Which of the following will be expected effect on employment and total wage payments in competitive labor markets?

Employment Total Wage Payments

1. Decrease Increase

2. Decrease Decrease

3. Decrease Might either increase or decrease

4. Increase Increase

5. Increase Might either increase or decrease

49. When the wage rate falls, Natasha, a utility-maximizing person,

1. Works more

2. Works less

3. Works the same amount.

4. May work more, less, or the same amount, depending on her tastes and preferences for leisure and consumption.

5. Does not work any more

50. If the price of factor A is $6 per hour and its marginal product is 10 units, and the price of factor B is $5 per hour and its marginal product is 9, the producer is likely to

1. hire more of A and less of B

2. hire more of B and less of A

3. start paying factor A more

4. try to use factor B more productively

5. hire more of both A and B

51. The firm is considering investment which will cost it $2000 today, but will bring revenues of $2250 in one year's time. Given that the market rate of interest of 12% the firm

1. should undertake this investment

2. should undertake this investment only if it has $900 readily available and does not have to borrow this money from the bank

3. should not undertake this investment

4. should undertake this investment only if it is profit making

5. not enough information to answer the question

52. The overall economy supply for land is

1. Perfectly inelastic

2. Perfectly elastic

3. Unit elastic

4. Upward-sloping

5. Downward-sloping

53. Market equilibrium for land is achieved when

1. Individual demand for land is equal to supply of land

2. Everyone who was willing to buy land can buy it and is satisfied with the price paid

3. Sum of individual demands for land is equal to supply of land

4. More than one answer is correct

5. None of the above

54. Consider a competitive industry creating a negative externality in production that increases nonlinearly with the output produced. In this case:

    1. A per-unit tax can restore efficiency

    2. Direct bargaining can restore efficiency

    3. A quota can restore efficiency

1. I

2. II

3. III

4. II and III

5. I, II and III

55. Suppose that the government decides to abolish regulation of insulin (a life-supporting medicine for some people) production and make it a free market. The likely result will be: