Explain why the marginal revenue product of labor curve is the firm's short-run demand curve for labor.
What will be an ideal response?
The marginal revenue product curve for labor shows the extra revenue that is generated by an additional unit of labor. A profit-maximizing firm will follow the marginal principle and hire labor up to the point where the marginal cost of labor is equal to the marginal revenue. For a firm that is perfectly competitive in the labor market, the marginal cost of labor is equal to the wage rate, since the firm can hire all of the labor it wants at the market wage rate. Marginal revenue is given by the marginal revenue product curve. So a firm will hire labor up to the point where the wage is equal to the marginal revenue product of labor. This gives the relationship between the wage and the quantity of workers demanded, which is the demand curve for labor.
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Suppose the economy has no income taxes or imports. The MPC equals 0.8. What does the expenditure model predict will be the change in real GDP if investment increases by $200 billion?
What will be an ideal response?
The set of collectively held beliefs, values, and norms among the members of a firm that influence individual behavior is referred to as
A) network values. B) horizontal values. C) implicit contracts. D) corporate culture.
Which of the following is true?
a. During any given year, the size of the economic pie available for allocation to individuals is fixed. b. When the link between worker productivity and reward is weakened, individuals have less incentive to create income. c. If they reduce income inequality, taxes and income transfers will not alter the incentive of individuals to engage in productive activity. d. The total output of an economy is unrelated to the distribution of income.
Regulating natural monopolies according to the "rate of return" criterion is likely to
a. reduce the incentive of firms to minimize cost. b. result in a smaller quantity of output than when the natural monopolist is unregulated. c. discourage the firms from investing resources in an effort to influence the decisions of the regulatory agency. d. increase the number of firms in the industry.