Question

Below are six concepts, 1-4, and six definitions, A-D. Match each definition to its concept by writing the correct letter in the extreme left-hand margin.

____       1.    Marginal product of labor (MPL)

____       2.    Human capital

____       3.    Compensating differential

____       4.    Statistical discrimination

____       5.    Asymmetric information

____       6.    Signal

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A         Using information about group averages to make conclusions about individuals

B          An expensive action that is taken to reveal information

C          The increase in a firm’s revenues created by hiring an additional laborer

D         A difference in wages that offsets differences in working conditions

E          This arises when one party to an exchange has more or better information than the other party.

F          Tools of the mind, the stuff in people’s heads that makes them productive

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Questions 7-11 test your understanding of the demand for labor in a competitive labor market.

A profit-maximizing entrepreneur rents an apple orchard for a day. He is a price taker in both the market for labor and the market for apples. Laborers are hired by the day (the variable input) to pick apples (the product). The production function (the relationship between the number of laborers hired and the number of bushels of apples picked) looks like this:

                             Laborers                               Total product

                         hired per day                       (bushels of apples per day)

                                  10                                       180

                                  11                                       220

                                  12                                       228

Now answer the following questions.

7.         What is the marginal product (in bushels) of the eleventh laborer?

            A 8                     B 18       C 19              D 20       E 40

8.         What is the average product (in bushels) of a laborer when eleven laborers are employed?

            A 8                     B 18       C 19              D 20       E 40

Now assume a bushel of apples sells for $10.

9.         What is the marginal product (in dollars) of the eleventh laborer?

            A $80                 B $180          C $190          D $200           E $400

10.       What is the marginal product (in dollars) of the twelfth laborer?

            A $80                 B $180          C $190          D $200           E $400

11.       If the wage rate were $100 per day, how many laborers would the entrepreneur employ?

            A 10                   B 11         C 12

Answer 1

Marginal product of capital - The increase in a firm’s revenues created by hiring an additional laborer

Human capital - Tools of the mind, the stuff in people’s heads that makes them productive

Compensating differential - A difference in wages that offsets differences in working conditions

Statistical discrimination - Using information about group averages to make conclusions about individuals

Asymmetric information - This arises when one party to an exchange has more or better information than the other party.

Signal - An expensive action that is taken to reveal information.

....

7( e) 40

8 (d) 20

9(e) $400

10 (a) $80

11( a) 10 ( slight confusing)