Ap Micro Chapter 5

AP MICROECONOMICS Test Booklet
to do whenever you are free for chapter 5
1.
According to the information in the table above, the twelfth worker would increase the hourly profit by
(A) $0.20
(B) $1.10
(C) $1.30
(D) $2.40
(E) $5.20
2. ABC Limited, Inc., sells its product in a perfectly competitive market for a price of $15 per unit and hires workers
at a daily wage of $75. Labor is the only factor cost, and the firm is currently earning profits. If ABC hires one more
worker and output increases by 5 units per day, the firm's profits will
(A) decrease by $5
(B) decrease by $75
(C) increase by $75
(D) increase by $15
(E) remain unchanged
3. In the current labor market, suppose that the wage rate for accountants is significantly higher than the wage rate for
economists. In the long run, if you observed that the wage rate for economists rose while the wage rate for
accountants fell, which of the following would best explain your observation?
(A) The supply of economists must have increased, and the supply of accountants must have decreased.
(B) The supply of economists must have decreased, and the supply of accountants must have increased.
(C) The demand for economists must have increased, and the supply of accountants must have decreased.
(D) The demand for economists must have decreased, and the supply of accountants must have increased.
(E) The demand for both economists and accountants must have decreased.
4. The marginal revenue product of labor is the
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(A) product price times the wage rate

(B) additional revenue a firm earns when it employs an additional unit of labor
(C) increase in the average product of labor when the firm employs an additional unit of labor
(D) increase in the price of labor when the firm employs an additional unit of labor
(E) marginal revenue plus product price
5. Assume that firms providing health-care services to older people operate in a perfectly competitive market. What
must happen in the market for health-care workers if there is an increase in the number of older people in a country?
(A) The demand for health-care workers will increase.
(B) The marginal factor cost in the health-care industry will decrease.
(C) The number of health-care workers will decrease.
(D) The quality of health-care services will increase.
(E) The wages of health-care workers will decrease.
6. As the population of a country ages, the demand for health care is projected to increase. As a result, the health care
industry is likely to experience all of the following EXCEPT
(A) an increase in demand for health care workers
(B) an increase in demand for medicine
(C) an increase in the quantity of health care workers supplied
(D) an increase in the wages of health care workers
(E) a decrease in the prices of medicine
7. A perfectly competitive producer of steel rods and steel beams employs 100 workers with identical skills. If steel
rods and steel beams sell for the same price, which of the following rules should the producer always follow to use
the 100 workers efficiently?
I. Allocate workers so that the average cost of producing beams equals the average cost of producing rods.
II. Allocate workers so that the marginal product of labor is the same in both rod production and beam
production.
III. Allocate half the workers to rod production and half the workers to beam production.
(A) I only
(B) II only
(C) III only
(D) II and III only
(E) I, II, and III
8. Assume that barber shops operate in perfectly competitive product and factor markets. Which of the following will
happen to working barbers if the price of haircuts decreases?
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(A) The marginal product of the last barber hired will not change.
(B) The marginal product of the last barber hired will decrease.
(C) The marginal revenue product curve will shift to the right.
(D) The marginal revenue product curve will shift to the left.
(E) There will be a movement upward along the marginal revenue curve.
9. Which of the following would cause the wage for computer programmers to increase?
(A) A decrease in the amount of physical capital per computer programmer
(B) An improvement in the education of computer programmers
(C) An increase in the social prestige associated with being a computer programmer
(D) A decrease in the value that computer programmers place on leisure
(E) A minimum wage set below the equilibrium wage in the market for computer programmers
10. If a binding minimum wage increases in a perfectly competitive labor market, then which of the following will
likely occur in the labor market?
(A) The supply of workers will increase.
(B) The supply of workers will decrease.
(C) The demand for workers will increase.
(D) The demand for workers will decrease.
(E) The quantity of workers supplied will increase.
11. A firm uses capital and labor in its production process. The marginal product for the last unit of labor is 5, the
marginal product for the last unit of capital is 10, and the wage is $10. At what cost of hiring each unit of capital
would the firm be minimizing the cost of the current output?
(A) $5
(B) $10
(C) $15
(D) $20
(E) $50
12. For a certain firm, the marginal revenue product for the last unit of labor is $60, and the marginal revenue product
for the last unit of capital is $100. Which of the following combinations of factor prices would be necessary for the
firm to maximize profits?
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Price of Labor Price of Capital

(A)
$2 $5

(B)
$3 $20

(C)
$10 $10

(D)
$2 $25

(E)
$60 $100
13. A profit-maximizing firm hires labor in a perfectly competitive market. Labor is the only variable input, and the
marginal product of the last worker hired is units per hour. If the hourly wage is , the firm’s marginal
revenue
(A) is
(B) is
(C) increases as more output is produced
(D) increases first and then decreases as more output is produced
(E) decreases first and then increases as more output is produced
14. A firm sells its output in a perfectly competitive market and hires two inputs, capital and labor, in perfectly
competitive factor markets. The product price is $15 per unit, the wage is $75 per day, and the marginal product of
capital is 3. If the firm is choosing the least-cost combination of labor and capital, the firm's marginal product of
labor and the price of capital must be equal to which of the following?
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Marginal Product of Labor Price of Capital

(A)
25 $5

(B)
25 $45

(C)
5 $15

(D)
5 $25

(E)
5 $45
15.
The table above shows the short-run output for a perfectly competitive firm. If the price of the product is $10, what
is the marginal revenue product of the third worker hired?
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(A) $24
(B) $27
(C) $40
(D) $240
(E) $300
The following questions are based on the following output and total revenue for a monopolist in the product
market.
The marginal product of labor is constant at 1 unit for every additional unit of labor. The monopolist hires labor in a
perfectly competitive market at the wage rate of $5 per hour.
16. How many units of labor should the firm employ to maximize profits?
(A) 1
(B) 2
(C) 4
(D) 5
(E) 6
17. What is the marginal revenue product of labor when the firm produces the third unit of output?
(A) $3
(B) $7
(C) $9
(D) $20
(E) $27
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18. A perfectly competitive firm is currently producing at the profit-maximizing output level. If the marginal physical
product of labor is 10 units per hour and the firm pays a wage rate of $8 per hour, which of the following is true?
(A) The marginal revenue product of labor is $80.
(B) The marginal cost is $1.25.
(C) The average total cost is $0.80 per unit.
(D) The output price is $0.80 per unit.
(E) The output price is $1.25 per unit.
19. Assume that labor and capital are the only two inputs a perfectly competitive firm uses to produce wheat. The firm
hires its inputs in perfectly competitive input markets. The unit price of labor is $8 and of capital is $20. When the
firm employs the profit-maximizing combination of these two inputs, the marginal product of labor is 2 tons of
wheat and of capital is 5 tons of wheat. The price of wheat per ton must be
(A) $ 2
(B) $4
(C) $5
(D) $ 8
(E) $ 10
20. Which of the following will shift the demand curve for a factor of production to the left?
(A) A decrease in the price of the factor of production
(B) A decrease in the price of a substitute factor of production
(C) An increase in the price of the product produced by the factor
(D) An increase in the marginal product of the factor
(E) An improvement in technology used by the factor of production
21. A firm is currently employing a cost-minimizing combination of labor and capital for a given level of output. The
firm is employing 20 workers, and the marginal product of the last worker is 40 units of output. The firm is
employing 100 units of capital, and the marginal product of the last unit of capital is 10 units of output. If the wage
rate is $20 per hour, what is the price of capital?
(A) $2.5 per hour
(B) $5 per hour
(C) $10 per hour
(D) $100 per hour
(E) $200 per hour
22. Mary manages a manufacturing plant. Two inputs are used to produce the product. To minimize the costs of
production, Mary should continue to hire inputs up to the level at which the
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(A) price of each input is equal

(B) marginal product of each input is equal
(C) (marginal product price) of each input is equal
(D) (marginal product price) of each input is equal
(E) (marginal product price) of each input is equal
23.
Capital Labor
Marginal Product units units
Hourly Price
Assume that capital and labor are the only two inputs used by a clinic. The table shows the hourly marginal product
and the hourly price of capital and labor at the current output level. To minimize costs at the current output level,
the clinic should change the hiring of capital and labor in which of the following ways?
(A) The amount of capital hired should decrease, and the amount of labor hired should increase.
(B) The amount of capital hired should decrease, and the amount of labor hired should decrease.
(C) The amount of capital hired should increase, and the amount of labor hired should decrease.
(D) The amount of capital hired should increase, and the amount of labor hired should increase.
(E) There should be no change to the quantity of capital or labor hired.
24. In the long run, assume a firm uses both labor and capital to produce units of output. The marginal product of the
last unit of labor being employed is ; the marginal product of the last unit of capital being employed is . The
wage rate of labor is . If the firm is minimizing the cost of producing units of output, what must be the unit
price of capital?
(A)
(B)
(C)
(D)
(E)
25. Firm is producing widgets using labor and capital. The marginal product of the last unit of labor employed is
; the marginal product of the last unit of machinery (or capital) is . The unit price of labor is , and the
unit price of machinery or capital is . With competitive input markets, which of the following statements is
true?
(A) The firm is minimizing the cost of producing widgets with this combination of labor and capital.
The marginal product of labor is and the marginal product of capital is , so the firm is employing
(B)
too much labor and too few machines to produce the widgets.
The marginal product per dollar of labor exceeds the marginal product per dollar of machinery, so more labor
(C)
and less capital should be used to produce the widgets.
(D) The firm should lower the price of machinery so that it is equal to the price of labor.
(E) The firm is producing the given quantity inefficiently and should shut down.
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26. A contractor is employing labor and capital to build an office complex. At the current mix of inputs, the marginal
product of labor is 30 square feet per day, and the marginal product of capital is 90 square feet per day. The price of
labor is $1,000 per day, and the price of capital is $3,000 per day. To hire inputs in a cost-minimizing way, the firm
should
(A) hire more labor and less capital
(B) hire less labor and more capital
(C) hire more labor and more capital
(D) hire less labor and less capital
(E) make no changes to the mix of inputs
The following questions are based on the following table below, which shows the relationship between the number
of workers and coal output (in tons per day).
27. How many workers would the coal company want to hire if the price of coal were competitively priced at $5 per ton
and the wage rate were $40 per day?
(A) 5
(B) 4
(C) 3
(D) 2
(E) 0
28. Which of the following is most likely to increase the supply of soldiers for an all-volunteer army?
(A) A decrease in the salaries paid to soldiers
(B) A decrease in the average wage rate in civilian employment
(C) A reduction in college tuition benefits provided by soldiers
(D) The imposition of new restrictions on women in the military
(E) An increase in the required length of service
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29. Businesses employ workers from city neighborhoods and rural areas. These workers are perfect substitutes and
cannot relocate in the short run. The government offers businesses a wage subsidy if they hire workers from city
neighborhoods. What is the effect of the subsidy on the wage rate of rural workers and on the total hours they
work?
Wage Rate of Rural Workers Total Hours Worked by Rural Workers

(A)
Increase Decrease

(B)
No change No change

(C)
No change Decrease

(D)
Decrease Decrease

(E)
Decrease No change
30. Suppose the market for health-care workers is perfectly competitive. Which of the following will happen in the
market for health-care workers in the short run if the demand for health care increases?
(A) The supply curve of health-care workers will shift to the right.
(B) The supply curve of health-care workers will shift to the left.
(C) The demand curve for health-care workers will shift to the right.
(D) The demand curve for health-care workers will shift to the left.
(E) Neither the demand curve nor the supply curve of health-care workers will shift.
31. Marginal resource (factor) cost can be defined as
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(A) the change in total resource cost caused by the production of one more unit of output
(B) the change in total revenue caused by the addition of one more unit of a resource
(C) the change in total resource cost caused by the addition of one more unit of a resource
(D) the total resource cost divided by the number of inputs used
(E) total resource cost divided by output
32. Pickleco, a pickle-producing firm, hires labor and capital in perfectly competitive factor markets. The firm is
minimizing its costs at the current production level. The marginal product of labor is units and the marginal
product of capital is units. If the rental price of capital is , what is the wage Pickleco is paying its workers?
(A)
(B)
(C)
(D)
(E)
33. At a given quantity of output of a firm, if the marginal product of capital equals the marginal product of labor and
the wage rate equals the rental rate of capital, then
(A) the firm is producing that quantity at the lowest cost
(B) the firm should use more capital and less labor to minimize cost
(C) the firm should use less capital and more labor to minimize cost
(D) the firm should use more of both inputs to increase quantity
(E) the firm should use less of both inputs to increase quantity
34. Which of the following tends to increase the gap in earnings between skilled and unskilled workers over time?
(A) An increase in the demand for unskilled workers relative to skilled workers
(B) An increase in the supply of skilled workers relative to unskilled workers
(C) A decrease in the demand for unskilled workers relative to skilled workers
(D) A decrease in both the demand for and the supply of skilled workers
(E) An increase in both the demand for and supply of unskilled workers
35. A firm's demand for labor is known as a derived demand because

(A) the firm gains utility from hiring more labor
(B) the wage rate paid to workers depends on the demand for labor
(C) the amount of labor demanded depends on the amount of capital invested
(D) the amount of labor demanded depends on the demand for the firm's product
(E) the firm will benefit from hiring additional labor
36. Marginal revenue product is defined as the
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(A) change in income that occurs when an individual works additional hours
(B) change in total revenue that occurs when one additional unit of the good is produced
(C) change in total revenue that occurs when one additional unit of an input is employed
(D) total revenue divided by the quantity of labor employed
(E) change in total cost that occurs when one additional unit of an input is employed
37. A monopsonistic labor market has a

(A) single employer of labor
(B) horizontal labor supply curve
(C) labor force of identically skilled workers
(D) backward bending labor supply curve
(E) demand curve for labor that is perfectly elastic
38. The demand curve for labor for a monopolist that faces a perfectly competitive factor market is called the
(A) average product curve
(B) marginal product curve
(C) marginal revenue curve
(D) marginal revenue product curve
(E) value of the average product curve
39. An increase in the demand for automobiles will cause the demand for skilled automobile workers and the wage rate
of skilled automobile workers to change in which of the following ways?
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Demand For Workers Wage Rate

(A)
Decrease Increase

(B)
Decrease Not change

(C)
Increase Decrease

(D)
Increase Increase

(E)
Not change Increase
40. Assume the market for disposable coffee cups is in equilibrium and disposable coffee cups are inputs for serving
brewed coffee. Which of the following will result in a higher short-run equilibrium price of disposable coffee cups?
(A) A decrease in the supply of coffee
(B) A decrease in the number of locations serving brewed coffee
(C) An increase in the supply of disposable coffee cups
(D) An increase in the demand for brewed coffee
(E) An increase in the price of tea, a complement for coffee
41. When the demand for new homes decreases, the demand for construction workers who build homes decreases. This
relationship illustrates the concept of
(A) derived demand
(B) diminishing marginal productivity of labor
(C) substitution in production
(D) supply shock
(E) property rights
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42. Economists argue that most professional athletes earn economic rent because they
(A) make additional income through commercial endorsements of products
(B) are able to participate in sports for only a limited number of years before changing occupations
(C) earn far more as professional athletes than they could earn in their next-best occupation
(D) participate in sporting events only about six months during a year
(E) work less than 40 hours a week during the sport season
43. Motivated by lower import prices, United States manufacturers increase their imports of steel from other steel-
producing countries. Which of the following best describes the impact of the increased steel imports on the labor
market for steelworkers in the United States?
Jobs in the United States steel industry will become less attractive, so wages will have to increase in this
(A)
market to attract more workers to the United States steel industry.
Domestic steel prices will fall, leading to an increase in sales of domestically produced steel, which increases
(B)
demand and employment of steelworkers.
(C) The supply of steelworkers will increase, lowering the steelworker wage in the United States.
(D) The supply of steelworkers will decrease, increasing the steelworker wage in the United States.
(E) The demand for United States steelworkers will decline, putting downward pressure on steelworker wages.
44. When labor supply in a competitive labor market increases, the equilibrium wage rate and employment will change
in which of the following ways?
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Wage Rate Employment

(A)
Increase Increase

(B)
Increase Decrease

(C)
Decrease Increase

(D)
Decrease Decrease

(E)
Decrease No change
45. The last worker currently employed by a firm has a marginal product of 3 units per hour and is paid $20 per hour.
Assuming that both the labor market and product market are perfectly competitive and that the product’s price is $5
per unit, the firm should do which of the following?
(A) Decrease wages
(B) Increase wages
(C) Employ more workers
(D) Employ fewer workers
(E) Increase the product’s price
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46.
The graph above shows the marginal revenue product (MRP) and the market wage rate for
a profit-maximizing firm. Which of the following is true of the firm’s hiring of labor?
(A) It should hire 15 workers.
(B) It should hire between 15 and 40 workers.
(C) It should hire 40 workers.
(D) It should hire between 40 and 90 workers.
(E) It should hire 90 workers.
47. A perfectly competitive firm currently produces units of output and hires its resources in a perfectly
competitive factor market. It uses both labor and capital as inputs. The price of labor is ; the price of capital is
. The marginal product of labor is units, and the marginal product of capital is units. Which of the
following must be true?
(A) The firm is currently maximizing its profit.
The firm can produce more than units without increasing the total cost if it uses more labor and less
(B)
capital.
The firm can produce more than units without increasing the total cost if it uses more capital and less
(C)
labor.
The firm can reduce the cost of producing units by using less capital and employing the same amount
(D)
of labor.
The firm can reduce the cost of producing units by employing less labor and using the same amount of
(E)
capital.
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The following two questions refer to the data in the table below.
A perfectly competitive firm operates with a fixed amount of capital that costs per day. Labor is the only variable
input. The firm hires labor in a perfectly competitive labor market at per day per worker. The table below shows the
firm’s production function.
Number of Workers Hired Quantity of Output (units)
48. The firm will maximize profit in the short run if it

(A) shuts down and the price is
(B) produces units and the price is
(C) produces units and the price is
(D) produces units and the price is
(E) produces units and the price is
49. Assume that a profit-maximizing, perfectly competitive firm hires labor in a perfectly competitive labor market. If
the market wage is $12 per hour and the price of the product is $3 per unit, the firm will
(A) hire more workers if each worker can produce 3 units per hour
(B) hire another worker if the output per hour of the additional worker exceeds 4 units
(C) hire fewer workers, since the hourly wage exceeds the cost of producing one unit of output
(D) not hire any workers, since the cost of labor is greater than the price of the output
(E) continue to operate in the short run but not in the long run
50. A profit-maximizing firm should hire an input up to the point at which
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(A) marginal physical product equals marginal revenue product

(B) marginal revenue equals marginal factor cost
(C) marginal revenue product equals marginal revenue
(D) marginal revenue product equals marginal factor cost
(E) marginal physical product equals marginal factor cost
51. A perfectly competitive profit-maximizing firm will continue to hire additional units of an input as long as the
(A) marginal product of the input is maximized
(B) marginal cost of employing the input is maximized
(C) value of the marginal product of the input exceeds the price of the input
(D) revenue associated with the employment of the last unit of the input is maximized
(E) price of the product is greater than the marginal cost of the input
52.
The table above describes the production function of an auto parts manufacturer. Assume that the firm can hire as
many workers as it wants at the market wage rate of $600 per week per worker and sell as many auto parts as it
wants at the price of $10 per part. To maximize profits, the firm should hire
(A) 0 workers
(B) 1 worker
(C) 3 workers
(D) 5 workers
(E) 7 workers
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Question is based on the chart below for a firm that is perfectly competitive in both the labor and product markets,
showing how much daily output a firm can produce using different numbers of workers.
53. If output sells for $20 per unit and the daily wage is $100 per worker, how many workers should the firm hire to
maximize profit?
(A) 1
(B) 2
(C) 4
(D) 5
(E) 6
54.
Based on the table for a perfectly competitive firm above, if the wage rate for labor is $15, how many units of labor
should the firm hire?
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(A) 2
(B) 3
(C) 4
(D) 5
(E) 6
55. Let W denotes nominal wage, P the output price, and MPL the marginal product of labor. Which of the following
relationships correctly estimates the marginal cost (MC) of production for a perfectly competitive firm in the short
run?
(A) MC = P/MPL
(B) MC = P x MPL
(C) MC = W x MPL
(D) MC = W/MPL
(E) MC = MPL/W
56.
FishNets hires workers from the labor market depicted in the provided graph. The government imposes a binding
minimum wage in the labor market. What is the binding minimum wage that would cause FishNets to hire the same
number of workers as a perfectly competitive labor market?
(A) $24
(B) $32
(C) $40
(D) $48
(E) $64
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57. Which of the following will occur in a perfectly competitive labor market if Firm X’s demand for labor decreases?
Equilibrium Market Wage Rate Equilibrium Market Wage Rate

(A)
Increase Increase
Equilibrium Market Wage Rate Employment by Firm X

(B)
No change No change
(C)
No change Decrease

(D)
Decrease Decrease

(E)
Decrease No change
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58.
The graph above shows the marginal revenue product curve and supply curve of labor for a firm. The introduction
of new management techniques dramatically increases workers productivity. Which of the following changes is
most likely to occur?
(A) The supply curve will shift to the left, increasing the wage rate.
(B) The supply curve will shift to the right, increasing employment.
(C) The marginal revenue product curve will shift to the right, increasing wage rate.
(D) The marginal revenue product curve will shift to the left, reducing employment.
Neither the marginal revenue product curve nor the supply curve will shift, but the wage will increase and
(E)
employment will fall.
59. Heggood, Inc., a perfectly competitive firm, produces hats using capital and labor purchased in competitive factor
markets. If the demand for hats increases, Heggood, Inc. will
(A) decrease the price of hats
(B) decrease its demand for labor
(C) decrease the quantity of labor demanded
(D) increase its demand for capital
(E) increase the rental price of capital
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60.
Hope Hospital is a monopsonistic employer of nurses. The marginal revenue product of nursing services, the
marginal factor (resource) cost of nursing services, and the market supply curve of nursing services are depicted in
the figure above by MRP, MFC, and S, respectively. What wage quantity combination does Hope Hospital choose
in order to maximize its profits?
(A) W1 and Q1
(B) W1 and Q3
(C) W2 and Q2
(D) W2 and Q4
(E) W3 and Q3
61. Which of the following is always true for a firm with monopsony power?
(A) The marginal revenue product curve is upward-sloping.
(B) The marginal revenue product curve lies above the input demand curve.
(C) The marginal factor cost curve lies above the input supply curve.
(D) The marginal factor cost curve lies above the input demand curve.
(E) The input demand curve lies above the marginal factor cost curve.
62. In a monopsonistic labor market, a firm will continue to hire workers until the marginal revenue product of labor
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equals marginal factor (resource) cost, resulting in more workers being hired at a lower wage compared with
(A)
a perfectly competitive labor market
equals marginal factor (resource) cost, resulting in fewer workers being hired at a lower wage compared with
(B)
a perfectly competitive labor market
equals marginal factor (resource) cost, resulting in fewer workers being hired at a higher wage compared
(C)
with a perfectly competitive labor market
is less than marginal factor (resource) cost, resulting in more workers being hired at a lower wage compared
(D)
is less than marginal factor (resource) cost, resulting in fewer workers being hired at a lower wage compared
(E)
63.
The graph above shows a monopsony labor market. In the absence of any regulations, which of the following
represents the number of workers the firm will hire and the wage rate it will offer to those workers?
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Number of Workers Wage Rate

(A)
15 $30

(B)
20 $20

(C)
20 $40

(D)
30 $30

(E)
40 $40
64. Which of the following explains why the marginal factor (resource) cost curve lies above the supply curve for labor
in a monopsonistic labor market?
(A) The monopsonist must lower its price to sell more output.
(B) Each worker is paid a different wage, based on individual marginal productivity.
(C) The monopsonist has market power and pays whatever wage it desires.
(D) The supply of labor is perfectly elastic.
(E) The monopsonist must increase the wage for all workers to hire more workers.
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65.
Which of the following statements about the monopsonistic labor market shown in the accompanying graph is true?
(A) The single firm will hire and pay each laborer a wage of .
In this monopsonistic labor market when the single employer maximizes economic profits, there will be no
(B)
deadweight loss.
(C) The profit-maximizing monopsonist will hire labor and pay each laborer .
When the single firm is maximizing profits, the marginal revenue product of labor will exceed the
(D)
marginal factor cost of labor.
The marginal factor cost of labor with the competitive equilibrium exceeds the marginal factor cost
(E)
of labor in monopsony.
66. The monopsonist’s marginal factor (resource) cost curve for labor is
above the labor supply curve because the product price is found on the demand curve above where marginal
(A)
cost equals marginal revenue
(B) above the labor supply curve because to hire more workers the firm must raise the wage for all workers
(C) below the labor supply curve because the firm is a wage taker
(D) below the labor supply curve because of diminishing marginal returns to labor
(E) below the labor supply curve because to sell additional units of output the firm must lower its product price
67. Assume that the last worker a firm hired produces 60 additional units of output per hour and the last machine rented
produces 6,000 units of output per hour. A worker’s hourly wage rate is $12, and the rental cost of a machine is
$1,000 per hour. In order to minimize the cost of its current output, the firm should
(A) do nothing, because the costs of production are minimized
(B) increase the use of labor and decrease the use of capital
(C) increase the use of capital and decrease the use of labor
(D) increase the use of labor and increase the use of capital
(E) decrease the use of labor and decrease the use of capital
Test Booklet
68. Assume that a firm uses labor and capital to produce a product. The firm hires labor at a wage rate of $4 per unit
and rents capital at $5 per unit. At its current output level, the marginal physical products of labor and capital are 20
and 30 units, respectively. To minimize its cost of production without changing the level of output, the firm should
(A) make no changes
(B) hire more labor and rent more capital
(C) hire less labor and rent more capital
(D) hire more labor and rent less capital
(E) hire less labor and rent less capital
69. Which of the following is true of a monopsony in a labor market?

(A) It faces a labor supply curve that is horizontal at the competitive market equilibrium wage.
(B) Its marginal factor (resource) cost is the same as the market supply curve.
(C) At its optimal level of employment, it pays a wage rate higher than the competitive market wage rate.
The imposition of a minimum wage results in a larger reduction in employment than is true in a competitive
(D)
market.
Its marginal factor (resource) cost curve lies above the labor supply curve because hiring an extra worker
(E)
means paying more to existing workers.
70. Max employs both labor and capital to produce toy trains. Currently the last unit of labor employed has a marginal
product of 15 units. The last unit of capital employed has a marginal product of 40 units. The price of labor is $3 per
unit, and the price of capital is $10 per unit. Which of the following employment decisions should Max follow to
use the least-cost combination of labor and capital to produce the current quantity of toy trains?
Test Booklet
Employment of Labor Employment of Capital

(A)
Increase No change

(B)
Decrease Increase

(C)
Decrease Decrease

(D)
Increase Increase

(E)
Increase Decrease
71. For a firm operating in perfectly competitive product and factor markets, the marginal revenue product of labor is
equal to the
(A) marginal product of labor
(B) price of labor multiplied by the marginal product of labor
(C) price of labor multiplied by the price of the output
(D) price of the output divided by the price of labor
(E) price of the output multiplied by the marginal product of labor
72. Assuming a single, profit-maximizing employer in a labor market with many workers, which of the following
statements relating to this monopsony is true?
Test Booklet
This single employer will hire more labor than if the market were perfectly competitive but will pay a lower
(A)
wage.
(B) This single employer is a wage taker, needing to pay the equilibrium wage for the geographic area.
In increasing employment, the marginal factor cost of an additional unit of labor exceeds the wage rate paid
(C)
to the laborer.
The profit-maximizing monopsonist will hire the quantity of labor where the marginal revenue product of
(D)
labor intersects the labor supply curve.
(E) The first workers hired are paid a higher wage than any additional workers hired by the monopsonist.
73.
Based on the graph above, which of the following statements is true?

(A) Hiring unit of labor will add to a firm’s economic profits.
(B) The market wage rate is per unit of labor.
(C) The profit-maximizing firm will hire its labor at less than per unit.
(D) From units of labor to units of labor, there are increasing marginal returns to labor.
Along the firm’s marginal revenue product of labor curve, the price of output falls as more labor is hired and
(E)
more output is produced.
74. If a firm employs only labor and capital in its production process, which of the following best describes the optimal
combination of inputs for the firm in the long run?
(A) The marginal product per dollar spent on labor is equal to the marginal product per dollar spent on capital.
(B) The marginal product of labor is equal to the marginal product of capital.
(C) The total product of labor is equal to the total product of capital.
(D) The marginal product of labor and capital are both zero.
(E) All marginal products are equal to all average products.
Test Booklet
75. Assume a firm uses only two inputs, capital (K) and labor (L), to produce its output. Let the marginal product of
capital be MPK , the marginal product of labor be MPL , the price of capital be PK , and the price of labor be PL .
The least-cost combination of capital and labor needed to produce a given level of output is given by which of the
following?
(A) MPL /PL = MPK /PK
(B) MPL /PL > MPK /PK
(C) MPL /PK = MPK /PL
(D) (MPL)PL = (MPK)PK
(E) MPL = MPK
76. The wage rate is $10 per hour and the last worker hired by the firm increased output by 100 units. Computers rent
for $100 per hour and the last computer rented by the firm increased output by 2,000 units. To minimize costs the
firm should
hire more workers and rent more computers because the marginal revenue products of both workers and
(A)
computers are greater than their respective prices.
(B) hire more workers and reduce the number of computers rented because workers are cheaper than computers
lay off workers and rent more computers because computers produce more output per dollar of additional
(C)
expenditure
(D) lay off workers and rent more computers because computers produce more output
keep the same number of workers and computers because the marginal revenue products of both workers and
(E)
computers are positive
77. An individual's labor supply curve is derived from that person's preferences about the trade-off between income and
(A) work
(B) wealth
(C) nominal wages
(D) productivity
(E) leisure
78. Which of the following will occur when wage rates decrease in a given labor market?
(A) The supply of labor will decrease.
(B) The demand for labor will increase.
(C) The quantity supplied of labor will decrease.
(D) The quantity demanded of labor will decrease.
(E) The supply of labor will decrease and the demand for labor will increase.
79. A firm produces truffles by using labor and capital. The price of labor is $10 per unit, and the price of capital is $20
per unit. At current output level, the marginal product of labor is 40 truffles and the marginal product of capital is 60
truffles. To reduce the total cost of producing the current quantity of truffles, how should the firm change its
spending on labor and capital?
Test Booklet
Labor Capital
(A)
No change Increase
Labor Capital
(B)
Decrease No change
Labor Capital
(C)
Decrease Increase
Labor Capital
(D)
Increase No change
Labor Capital
(E)
Increase Decrease
80. Consider two groups of workers in competitive labor markets. Workers in group X have a skill set unique to
producing computers, and workers in group Y have a skill set that can be used to produce either computers or
smartphones. When the price of smartphones decreases, the wages paid to workers producing smartphones decrease.
Which of the following could happen to the wages of workers in group X?
There would be no change in wages because workers in group X do not have the skills to produce
(A)
smartphones.
There would be no change in wages because the supply of and demand for workers producing computers
(B)
would both shift to the left.
Wages would decrease because the supply of workers producing computers would increase, with more
(C)
workers from group Y seeking jobs with firms producing computers.
Wages would decrease because the supply of workers producing computers would decrease, with more
(D)
workers from group X seeking training to qualify for jobs with firms producing smartphones.
(E) Wages would increase because workers in group X have specialized skills.
81. The demand curve for labor shows which of the following?
Test Booklet
(A) The quantity of output each worker can produce at various wage rates
(B) The number of workers required to produce a given level of output
(C) The number of workers a firm is willing and able to hire at various wage rates
(D) The positive relationship between the wage rate and the number of hours people wish to work
(E) The number of workers who are willing and able to work at various wage rates
82. Which of the following statements about the relationship between the demand for apple pickers and the demand for
apples is true?
(A) An increase in the demand for apples increases the demand for apple pickers.
(B) An increase in the demand for apples increases the wage rate and decreases the demand for apple pickers.
(C) A decrease in the demand for apples decreases the wage rate and increases the demand for apple pickers.
(D) An increase in the demand for apples increases productivity and the demand for apple pickers.
(E) A decrease in the demand for apples decreases productivity and the demand for apple pickers.
83. A profit-maximizing firm will continue to hire workers until the marginal revenue product of labor is equal to the
(A) marginal product of labor
(B) marginal revenue product of capital
(C) demand for labor
(D) price of the good that labor is producing
(E) marginal factor cost
Test Booklet
84.
The graph above shows the conditions that a monopsonist faces in a labor market. How many workers would this
monopsonist hire and what wage rate would it pay?
Test Booklet

(A)
5 $37.50

(B)
10 $30

(C)
10 $20

(D)
14 $24

(E)
14 $37.50
85. Which of the following statements most accurately describes the relationship between corn, an output, and
machines, an input, that are used to gather corn?
(A) The price of machines used to gather corn increases when the demand for corn increases.
(B) The price of machines used to gather corn decreases when the demand for corn increases.
(C) The price of machines used to gather corn increases when the demand for corn decreases.
The price of machines used to gather corn increases when the price of wheat, a producer substitute for corn,
(D)
increases.
(E) The price of machines used to gather corn is unrelated to the demand for corn.
86. Suppose that a large number of unskilled workers enter a nation’s labor market. If the labor market is competitive,
the number of unskilled workers hired and the wage rate will most likely change in which of the following ways?
Test Booklet
Number of Unskilled Workers Hired Wage Rate

(A)
Increase Increase

(B)
Increase Decrease

(C)
Increase Not change

(D)
Decrease Increase

(E)
Decrease Decrease
87. At its current employment level of labor and capital, a firm observes the following.
• Marginal product of labor = 30 units
• Marginal product of capital = 60 units
• Price of labor = $3 per unit
• Price of capital = $15 per unit
Which of the following actions should the firm take in order to achieve the least-cost combination of labor and
capital and produce the same level of output?
Test Booklet
Labor Capital
(A)
Increase Increase
Labor Capital
(B)
Increase Decrease
Labor Capital
(C)
Decrease Increase
Labor Capital
(D)
Decrease Decrease
Labor Capital
(E)
No change No change
88. For a firm hiring labor in a perfectly competitive labor market, the marginal revenue product curve slopes
downward after some point because as more of a factor is employed, which of the following declines?
(A) Marginal product
(B) Marginal factor cost
(C) Marginal cost
(D) Total output
(E) Wage rates
Test Booklet
89. • The marginal product of labor equals 250 units of output.
• The marginal product of capital equals 750 units of output.
• The price of labor is $50 per person.
• The price of capital is $100 per unit.
Given the information above, which of the following is true for a firm buying its labor and capital inputs in a
perfectly competitive market?
(A) The firm is producing its current level of output with the least-cost combination of labor and capital.
(B) The firm is maximizing profits with its current combination of inputs.
(C) The firm’s level of output will remain the same if 1 unit of capital is substituted for 2 units of labor.
(D) The firm’s input costs will decrease if 2 units of labor are substituted for 1 unit of capital.
(E) The firm can reduce the cost of its current level of output by laying off workers and employing more capital.
90. If the price of a good produced by a competitive firm increases, then

(A) the marginal product of labor will increase
(B) the average product of labor will increase
(C) the marginal revenue product of labor will increase
(D) the short-run demand for labor will decrease
(E) the supply of labor will increase

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AP MICROECONOMICS Test Booklet

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4. The marginal revenue product of labor is the

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(A) product price times the wage rate

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to do whenever you are free for chapter 5

Price of Labor Price of Capital

Price of Labor Price of Capital

Price of Labor Price of Capital

Price of Labor Price of Capital

Price of Labor Price of Capital

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Marginal Product of Labor Price of Capital

Marginal Product of Labor Price of Capital

Marginal Product of Labor Price of Capital

Marginal Product of Labor Price of Capital

Marginal Product of Labor Price of Capital

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to do whenever you are free for chapter 5

to do whenever you are free for chapter 5

(A) price of each input is equal

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to do whenever you are free for chapter 5

Wage Rate of Rural Workers Total Hours Worked by Rural Workers

Wage Rate of Rural Workers Total Hours Worked by Rural Workers

Wage Rate of Rural Workers Total Hours Worked by Rural Workers

Wage Rate of Rural Workers Total Hours Worked by Rural Workers

Wage Rate of Rural Workers Total Hours Worked by Rural Workers

31. Marginal resource (factor) cost can be defined as

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35. A firm's demand for labor is known as a derived demand because

36. Marginal revenue product is defined as the

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37. A monopsonistic labor market has a

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Demand For Workers Wage Rate

Demand For Workers Wage Rate

Demand For Workers Wage Rate

Demand For Workers Wage Rate

Demand For Workers Wage Rate

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to do whenever you are free for chapter 5

Wage Rate Employment

Wage Rate Employment

Wage Rate Employment

Wage Rate Employment

Wage Rate Employment

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to do whenever you are free for chapter 5

Number of Workers Hired Quantity of Output (units)

48. The firm will maximize profit in the short run if it

50. A profit-maximizing firm should hire an input up to the point at which

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(A) marginal physical product equals marginal revenue product

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to do whenever you are free for chapter 5

to do whenever you are free for chapter 5

Equilibrium Market Wage Rate Equilibrium Market Wage Rate