1. The empirical evidence that exists concerning the magnitude of the wage elast

Question

1. The empirical evidence that exists concerning the magnitude of the wage elasticity of labour demand indicates that it tends to be:

a) negative and elastic.

b) negative and inelastic.

c) negative and unitary elastic.

d) indeterminate.

2. What is the behavioural force that underlies the demand curve for labour?

a) Profit maximizing behaviour on the part of firms

b) Utility maximizing behaviour on the part of workers

c) Rate of return maximizing behavior on the part of investors

d) Revenue maximizing behaviour on the part of firms

3. For labour demand choices, the long run is defined as:

a) the time period over which all costs are fixed.

b) the period of time over which all inputs can vary.

c) the period of time over which fixed factors cannot vary.

d) the period of time over which variable factors can vary.

4. The demand for labour depends on all of the following except:

a) the price of capital.

b) the income effect of a wage change.

c) the price of the output.  

d) the marginal product of labour.

5. Consider the marginal physical product of labour function. In the area of diminishing returns in production:

a) Total output declines with each additional unit of labour input.

b) The marginal product of labour increases at a decreasing rate.

c) The marginal product of labour decreases.  

d) The marginal product of labour first increases, then reaches a maximum level, and then decreases.

6. In the long run, which of the following statements is false?

a) MPPN / MPPK = w / r.

b) The marginal rate of technical substitution is equal to the ratio of factor prices.

c) MPL = MPK.

d) Profits are maximized.

7. The determinants of the wage elasticity of demand for labour include all of the following except:

a) the availability of substitute inputs.

b) the firm's profitability

c) the elasticity of demand for output.

d) the ratio of labour cost to total cost.

8. Consider a firm that seeks to minimize the cost of producing a given level of output. How will it respond to an increase in the wage rate?

a) It will increase production

b) It will hire more workers

c) It will substitute capital for labour

d) It will not react at all

9. Estimates of the wage elasticity of labour demand have pegged it at approximately:

a) - 1.0

b) - 1.5

c) - 0.1 to - 0.6

d) 0

10. Which of the following statements regarding a firm's production function is true?

a) The marginal product of labour curve intersects the average product of labour curve at its lowest point.

b) The average product of labour curve intersects the marginal product of labour curve at its highest point.

c) The marginal product of labour curve must not intersect the average product of labour curve.

d) The marginal product of labour curve intersects the average product of labour curve at its highest point.

Explanation / Answer

Ans)
1.
b) negative and inelastic.
The empirical evidence that exists concerning the magnitude of the wage elasticity of labour demand indicates that it is negative and inelastic

2.
a) Profit maximizing behaviour on the part of firms
The profit maximizing behavior of the firm underlies the demand curve for labor

3. For labour demand choices, the long run is defined as:
b) the period of time over which all inputs can vary.
Long run is a period in which all factors vary

4. The demand for labour depends on all of the following except:
b) the income effect of a wage change.
The labor demand is a derived demand.

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