# MICRO ECONOMICS 202

Consider the following daily production data for MadeFromScratch, Inc. MadeFromScratch sells cupcakes for \$2 each and pays the workers a wage of \$325 per day.

Labor (number of workers)

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Quantity (cupcakes per day)

Marginal Product of Labor (cupcakes per day)

Value of the Marginal Product of Labor

Wage (per day)

Marginal Profit

0

0

\$325

1

200

\$325

2

380

\$325

3

540

\$325

4

680

\$325

5

800

\$325

6

900

\$325

1.   Refer to Table 1. What is the third worker’s marginal product of labor?

1. 120 cupcakes
2. 140 cupcakes
3. 160 cupcakes
4. 180 cupcakes
5. Refer to Table 1. What is the fourth worker’s marginal product of labor?
1. 120 cupcakes
2. 140 cupcakes
3. 160 cupcakes
4. 180 cupcakes

3.  Refer to Table 1. What is the fifth worker’s marginal product of labor?

a. 120 cupcakes

b. 140 cupcakes

c.  160 cupcakes

d.  180 cupcakes

4.  Refer to Table 1. What is the sixth worker’s marginal product of labor?

a.  100 cupcakes

b.  120 cupcakes

c.  140 cupcakes

d.  160 cupcakes

5.  Refer to Table 1 What is the value of the marginal product of the first worker?

a.  \$200

b.  \$400

c.  \$500

d.  \$700

6.  Refer to Table 1. What is the value of the marginal product of the second worker? .

a.  \$180

b.  \$360

c.  \$450

d.  \$720

7.  Refer to Table 1. What is the value of the marginal product of the fifth worker?

a.  \$120

b.  \$240

c.  \$300

d.  \$1,600

8.  Refer to Table 1. The marginal product of labor begins to diminish with the addition

of which worker?

a. the 1st worker

b. the 2nd worker

c. the 3rd worker

d. the 4th worker

9.  Refer to Table 1. What is the marginal profit of the fourth worker?

a.  \$280

b.  \$25

c.  –\$5

d.  –\$45

10.  Refer to Table 1. What is the marginal profit of the sixth worker?

1. \$100
2. −\$50
3. −\$75
4. −\$125

12.  Refer to Table 1. Assuming MadeFromScratch is a competitive, profit-maximizing firm, how many workers will the firm hire?

a. 2 workers

b. 3 workers

c. 4 workers

d. 5 workers

13.  Refer to Table 1. Assume that MadeFromScratch is a competitive, profit-maximizing firm. If the market price of cupcakes increases from \$2.00 to \$2.50, how many workers would the firm then hire?

a. 2 workers

b. 3 workers

c. 4 workers

d. 5 workers

14.  Refer to Table 1. Suppose that there is a technological advance that allows MadeFromScratch employees  to

produce more cupcakes than they could before. Because of this change, the firm’s

a. demand for labor shifts right.

b. demand for labor shifts left.

c. supply of labor shifts right.

d. supply of labor shifts left.

15.  Refer to Table 1. Suppose that the firm suffers a loss of some of their technology such as the theft of their industrial mixers. After the theft, MadeFromScratch employees produce fewer cupcakes than they could before because they must mix the cupcake batter by hand rather than using the high-speed mixers. Because of this change, the firm’s

a. demand for labor shifts right.

b. demand for labor shifts left.

c. supply of labor shifts right.

d. supply of labor shifts left.

16. Which of the following is most likely an inferior good?

1. an antique car
2. gasoline
3. a bus ticket
4. an airline ticket

17. A good is an inferior good if the consumer buys more of it when

a. his income rises.

b. the price of the good falls.

c. the price of a substitute good rises.

d. his income falls.

18. Pepsi and pizza are normal goods. When the price of pizza rises, the substitution effect causes Pepsi to be relatively

a.more expensive, so the consumer buys more Pepsi.

b.more expensive, so the consumer buys less Pepsi.

c.less expensive, so the consumer buys more Pepsi.

d.less expensive, so the consumer buys less Pepsi.

19.  You can think of an indifference curve as an

a.equal-cost curve.

b.equal-marginal-cost curve.

c.equal-utility curve.

d.equal-marginal-utility curve.

20.  A Giffen good is one for which the quantity demanded rises as the price rises because the income effect

1. reinforces the substitution effect.
2. reinforces and is greater than the substitution effect.
3. counteracts but is smaller than the substitution effect.
4. counteracts and is greater than the substitution effect.

21.  How are the following three questions related: 1) Do all demand curves slope downward? 2) How do wages affect labor supply? 3) How do interest rates affect household saving?

1. They all relate to macroeconomics.
2. They all relate to monetary economics.
3. They all relate to the theory of consumer choice.
4. They are not related to each other in any way.

22. Just as the theory of the competitive firm provides a more complete understanding of supply, the theory of consumer choice provides a more complete understanding of

a.demand.

b.profits.

c.production possibility frontiers.

d.wages.

23. The theory of consumer choice most closely examines which of the following Ten Principles of Economics?

b.Governments can sometimes improve market outcomes.

c.Trade can make everyone better off.

d.Markets are usually a good way to organize economic activity.

24.  The theory of consumer choice provides the foundation for understanding the

a.structure of a firm.

b.profitability of a firm.

c.demand for a firm’s product.

d.supply of a firm’s product.

25.  The theory of consumer choice

a.underlies the concept of the demand for a particular good.

b.underlies the concept of the supply of a particular good.

c.ignores, for the sake of simplicity, the trade-offs that consumers face.

d.can be applied to many questions about household decisions, but it cannot be                                     applied to questions concerning wages and labor supply.

II

FIFTY POINTS

BOBBY’S BOTTLE SHOP, LLC

BBS makes and sells bottles in a perfectly competitive market at a price of \$.50 for each bottle.  BBS hires its labor in a perfectly competitive market  at an hourly wage of \$20.  The relationship between the quantity of labor hired and the amount of output produced each hour is presented below:

LABOR             Q            MPL               VMPL                         WAGE              MARGINAL

(= P X MPL)                                              PROFIT

0                         0                   —–                  ——-                           ——–

1                        90                 90                    \$45                             \$20                 \$25

2                        ___               ___                 ____                           20                    ____

3                        ___               ___                 ____                           20                    ____

4                       ___                ___                 ____                           20                    ____

5                       ___                ___                 ____                           20                    ____

6                       ___                ___                 ____                           20                    ____

7                       ___                ____               ____                           20                    ____

8.                      ___                ____               ___                             20                    ____

1.         Enter the missing data in the proper place on the above grid.

2.         What is the efficient labor quantity?  Why?

3.         Graph the equilibrium supply and demand for labor; label all curves and                           the             axes.

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