20. In the neoclassical model of the perfectly competitive labor market, what do
ID: 1115063 • Letter: 2
Question
20. In the neoclassical model of the perfectly competitive labor market, what does a firm do when the marginal revenue product of labor (MRP) is greater than the marginal factor cost of labor (MFCL)? a. It substitutes capital for labor. b. It hires more labor c. It hires less labor d. It raises prices. e. None of the above 21. Which is not an opportunity cost of paid employment? a. Education b. Leisure c. Wages e. Self-employment 22. If the demand for labor is relatively wage elastic, an increase in labor supply will lead to.. a. a large decline in wages. b. a small decline in wages c. a large decline in employment d. a small decline in employment. e. no change in wages or employment. Refer to the graph below for Question 23. The Market for Nurse Wage 23. Referring to the graph above, an increase in the demand for nurses will a) shift the labor supply curve for nurses to the right b) shift the labor supply curve for nurses to the left. c) increase wages and increase employment d) increase wages and decrease employment. e) decrease wages and decrease employmentExplanation / Answer
(20) (b)
When MRPL > MFCL, additional revenue earned by the last unit of labor is higher than the cost of hiring that last unit of labor, so marginal profit is positive and it will increase if more labor is added.
(21) (c)
Opportunity cost is the benefit foregone by working in a job. Wage earned is a benefit earned, not a benefit foregone.
(22) (b)
The more elastic (inelastic) labor demand is compared to labor supply, a given increase in labor supply leads to the smaller (larger) fall in wage rate and the larger (smaller) rise in employment.
(23) (c)
Increase in demand for nurses will shift the labor demand curve rightward, increasing both wage rate and employment.
NOTE: As per Chegg answering guideline, the 1st 4 questions are answered.
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