Microeconomics Practice Test - 13: Input Pricing and Employment

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1. A firm operating in perfectly competitive product and input markets maximizes its total profits when

1. $${P_x} = M{C_x}{\rm{ and M}}{{\rm{C}}_x}{\rm{ is rising}}$$

2. $$\frac{{M{P_a}}}{{{P_a}}} = \frac{{M{P_b}}}{{{P_b}}}$$

3. $$\frac{{M{P_a}}}{{{P_a}}} = \frac{{M{P_b}}}{{{P_b}}} = \frac{1}{{M{C_x}}}$$

4. $$\frac{{M{P_a}}}{{{P_a}}} = \frac{{M{P_b}}}{{{P_b}}} = \frac{1}{{M{C_x}}} = \frac{1}{{{P_x}}}$$

2. If input A is the only variable input for a perfectly competitive firm in the product market, the firm’s demand curve for input A is given by its

1. VMPa curve

2. MPa curve

3. MRCa curve

4. none of the above

3. In order to get the demand curve for a firm for one of several variable inputs, we must consider

1. the internal effect of the change in the input price

2. the external effect of the change in the input price

3. monopolistic exploitation

4. monopolistic exploitation

4. Consideration of the external effect of a fall in the input price will make the market demand curve of the input

1. vertical

2. more elastic than otherwise

3. less elastic than otherwise

4. will have no effect on the elasticity of the market demand curve for the input

5. When the market supply curve of input A (Sa) is positively sloped

1. QSa is fixed regardless of Pa

2. Da alone determines the equilibrium Pa

3. the intersection of Da and Sa determines the equilibrium Pa but not the equilibrium Qa

4. the intersection of Da and Sa determines both the equilibrium Pa and Qa

6. When Sa has zero (price) elasticity

1. QSa is fixed regardless of Pa

2. the Da curve alone determines the equilibrium Pa (given the level at which QSa is fixed)

3. the entire payment received by input A is a rent

4. all of the above are true

7. Quasi-rent is

1. equal to the firm’s total profit

2. greater than the firm’s total profits

3. smaller than the firm’s total profits

4. any of the above is possible

8. When input A is the only variable input for an imperfect competitor in the product market, the firm’s demand for input A is given by its

1. VMPa curve

2. MRPa curve

3. MFCa curve

4. none of the above

9. When all firms using input A are monopolists in their respective product markets, Da is obtained by a consideration of the firms’ MRPa curves and

1. the internal effects only of a change in Pa

2. the external effects only of a change in Pa

3. either the internal effects or the external effects

4. both the internal and the external effects

10. The $$MR{C_a} > {P_a}$$ when the firm is

1. a monopsonist

2. an oligopsonist

3. a monopsonistic competitor

4. all of the above

11. When $$VM{P_a} > MR{P_a} > {P_a},$$ we have

1. monopolistic exploitation

2. monopsonistic exploitation

3. both monopolistic and monopsonistic exploitation

4. neither type of exploitation

12. The general condition for profit maximization for a firm under any form of organization in the input and product markets is

1. $$\frac{{M{P_b}}}{{{P_b}}} = \cdot \cdot \cdot = \frac{{M{P_n}}}{{{P_n}}} = \frac{1}{{M{C_x}}} = \frac{1}{{P{}_x}}$$

2. $$\frac{{M{P_a}}}{{{P_a}}} = \frac{{M{P_a}}}{{{P_a}}} = \cdot \cdot \cdot = \frac{{M{P_b}}}{{{P_b}}} = \frac{{M{P_n}}}{{{P_n}}} = \frac{1}{{MC{}_x}} = \frac{1}{{M{R_x}}}$$

3. $$\frac{{M{P_a}}}{{MR{C_a}}} = \frac{{M{P_b}}}{{MR{C_b}}} = \cdot \cdot \cdot = \frac{{M{P_n}}}{{MR{C_n}}} = \frac{1}{{M{C_x}}} = \frac{1}{{M{R_x}}}$$

4. all of the above