Question

1.The marginal revenue product of labor is equal to the product of: a.the wage rate and the marginal product of labor. b.the marginal product of labor and the quantity of labor employed. c.marginal product of labor and total revenue of the firm. d.the wage rate and marginal revenue per unit of output. e.the marginal revenue per unit of output and the marginal product of labor.

2 A profit-maximizing firm will hire the variable input, labor, until the point where: a.marginal revenue from each unit of output is equal to the wage rate. b.marginal product of labor is equal to the marginal revenue product of capital. c.marginal revenue product of labor is equal to zero. d.marginal product of labor equals the marginal revenue from each unit of output. e.marginal revenue product of labor is equal to the marginal cost of labor.

3. When a firm faces constant returns to scale, a proportionate increase in all inputs: a.will keep output constant. b.will increase output by the same proportion as the increase in inputs. c.will not change the total costs of production. d.will result in a higher-than-proportionate increase in output. e.will lead to a decline in the cost of production.

Answer 1

1. e. the marginal revenue (MR) per unit of output and the marginal product of labor(MPL)
(Marginal revenue product (MRP) = MR*MPL)

2. e. the marginal revenue product of labor is equal to the marginal cost ( MC) of labor
(profit maximising firm will emply labor until MRP of labor = MC. At this point, its profits would be maximum.)

3. b. will increase output by the same proportion as the increase in inputs.
(Constant returns to scale means if inputs are increased in a particular proportion then output will be increased in the same proportion)