Question

1. The average product of labor is calculated as

a)total revenue divided by the number of workers employed.

B)total output divided by the number of workers employed.

C)the change in output divided by the change in labor

D wages multiplied by the number of workers.

2.Input demand curves slope downward due to the

A)output effect of a factor price increase

B)factor substitution effect

C)output effect of a factor price decrease

D)all of the above

Answer 1

1. B) total output divided by the number of workers employed.

Average product of labor measures the output of an average worker.

2. D) all of the above

Reasons why input demand curve slopes downward:

i) Output effect of a factor price increase - when a firm decreases its output in response to a factor price increase, this decreases its demand for all factors.

ii) Factor substitution effect - the tendency of firms to substitute away from high price factor and towards low price factor.

iii) Output effect of a factor price decrease - when a firm increases its output in response to a factor price decrease, this increases its demand for all factors.