1· The table shows a total-product schedule for a resource. Assume all other res

Question

1· The table shows a total-product schedule for a resource. Assume all other resources for the firm are fixed. If the firm's product sells for $2 per unit, the marginal revenue product of the third unit of the resource is Total Product a 24 42 54 64 72 Units of Resource 2. Wage (A) $6 (B) $12 (C) $18 (D) $24 2. Which event would induce a change in labor demand from D1 to D2 in the car industry (A) A decrease in the gas price (B) Technology that enables the production of cars by machines (C) New subway lines (D) An increase in the price of car insurance 2 1 3. Why does the aggregate labor supply curve generally slope upwards? Quantity of Labor (A) The substitution effect of higher wages exceeds the income (B) The substitution effect exactly equals the income effect. (C) The substitution effect of higher wages is smaller than the income effect. (D) The substitution effect doesn't matter. It's simply because the income effect of higher wages induces workers to consumer more leisiire as income increases. 4. Suppose there is a huge influx ofmigrant workers into a country. Ceteris paribus, what happens to its domestic labor (A) The equilibrium wage decreases... B) The equilibrium wage increases... (C) The equilibrium wage remains unchanged. (D) The equilibrium wage increases at first, then gradually decreases to the previous equilibrium.

Explanation / Answer

1) MRP = MPL x Price

MPL = 54 - 42 = 12

MRP = 12 x 2 = $24 (Option D is correct)

2) Option A is correct (A decrease in gas price (complementary good) would increase the demand for cars and hence demand for labour)

3) Option A is correct (The substitution effect of higher wages exceeds the income effect, leisure is substituted for labour)

4) Option A is correct (Equilibrium wage decreases, supply of labour increases)

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