Practice Questions
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What is the primary condition for a firm to maximize profits in a competitive labor market?
A firm maximizes profits by hiring workers until the extra money earned from their work equals what they are paid. Other options are incorrect because...
How do wage differentials in labor markets reflect the concept of human capital investment?
Workers with more skills and education can do their jobs better. Other options are incorrect because This idea suggests that wages only depend on how ...
In a competitive labor market, how does a firm determine the optimal number of workers to hire for profit maximization?
A firm hires workers until the extra cost of hiring one more worker is equal to the extra output they produce. Other options are incorrect because Thi...
In a competitive labor market, how does a firm determine the optimal wage to maximize profits while considering the elasticity of labor supply and wage differentials across similar industries?
Firms look at how workers react to wage changes. Other options are incorrect because Some might think firms should just pay the minimum wage; It's a c...
In a competitive labor market, how does a firm determine the optimal level of labor to hire to maximize profit, considering the relationship between labor demand, marginal cost, and labor market equilibrium?
A firm hires workers until the extra output from one more worker equals the wage paid. Other options are incorrect because Some might think hiring as ...
In labor markets, how does an increase in labor demand typically affect wages and employment levels?
When more workers are needed, companies pay higher wages to attract them. Other options are incorrect because This answer suggests that both wages and...
What happens to the supply of labor when wages increase in a competitive labor market?
When wages go up, more people want to work. Other options are incorrect because Some might think that higher wages mean fewer people will work; It's a...
In a perfectly competitive labor market, how is the wage determined for workers?
Wages are set by the balance of how many workers want jobs and how many jobs are available. Other options are incorrect because Some might think the g...
A firm notices that its marginal revenue product (MRP) of labor is consistently greater than the marginal factor cost (MFC). What should the firm consider doing to maximize profits?
When the MRP is higher than the MFC, it means the firm earns more from each worker than it pays them. Other options are incorrect because Some might t...
A small bakery is currently hiring additional staff. They notice that as they employ more bakers, the additional revenue generated from each new baker is increasing due to an uptick in demand for specialty cakes. However, the bakery owner is concerned about rising wages in the area. How should the bakery owner decide how many bakers to hire to maximize profits?
The owner should hire bakers until the extra money made from the last baker equals the cost of hiring them. Other options are incorrect because This i...
If a firm observes an increase in its profit after raising wages for its employees, which of the following is the most likely underlying cause for this change in profit?
When workers earn more, they often work harder and are more focused. Other options are incorrect because While happy workers may ask for less, this do...
Which of the following statements accurately describe the conditions under which a firm maximizes profits in labor markets? Select all that apply.
Other options are incorrect because This statement suggests that a firm should keep hiring if the extra money made from hiring is more than the wage; ...
If hiring additional workers is like increasing the size of a production line to enhance output, then what is the equivalent scenario for when a firm continues hiring until the marginal revenue product equals the marginal factor cost?
A factory should keep expanding until the cost of rent matches the money it makes from selling more products. Other options are incorrect because This...
A company is faced with a decision to hire an additional worker. If the marginal revenue product (MRP) of this worker is $150 and the marginal factor cost (MFC) is $120, which category does this hiring decision fall into, and why?
The MRP shows how much money the worker can bring in. Other options are incorrect because This option thinks costs are more important than benefits; T...
In a perfectly competitive labor market, a firm will continue to hire additional workers until the _____ of the last worker hired equals the marginal factor cost of labor.
A firm hires workers until the extra money made from the last worker equals what it costs to hire them. Other options are incorrect because Total prod...
What happens to a firm's hiring decisions when the marginal revenue product exceeds the marginal factor cost?
When the extra money a worker brings in is more than what it costs to hire them, the firm can make more profit by hiring more workers. Other options a...
Arrange the following steps in the correct order to explain how a firm determines the optimal number of employees to hire for profit maximization in a labor market.
First, a firm needs to find out how much extra output each new worker can produce. Other options are incorrect because Some might think comparing reve...
Master Profit Maximization in Labor Markets
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