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35 Multiple Choice questions: competitive industry, complementary inputs, marginal revenue product, Conglomerate mergers, Vertical integration, market failure problems in private markets, marginal cost, skilled workers, demand for labor, public good, Marginal resource cost, marginal revenue product, price elasticity of demand for an input, antitrust law, 1. In a competitive industry, suppose the marginal revenue product (MRP) of the last doughnut baker hired is \$35, the MRP of the last bagel baker hired is \$15, and a bakery must pay doughnut bakers \$40 a day and bagel bakers \$10 per day. To maximize profits the bakery should hire: A) more doughnut bakers and less bagel bakers. B) less doughnut bakers and more bagel bakers. C) less of both doughnut bakers and bagel bakers. D) more of both doughnut bakers and bagel bakers. 2. If two inputs are complementary an increase in the price of one input will: A) decrease the demand for the other input. B) increase the demand for the other input. C) increase the quantity demanded for the other input. D) have no effect on the demand for the other input. 3. If the marginal revenue product (MRP) of labor is less than the wage rate: A) the firm is making profits. C) more labor should be employed. B) the firm is incurring losses. D) less labor should be employed. 4. Conglomerate mergers are combinations of: A) many small firms. B) firms producing the same product. C) firms producing unrelated products. D) firms operating at different stages in a given production process. 5. "Vertical integration" refers to mergers between firms: A) making unrelated types of products. B) at the same stage of production of the same end product. C) at the same stage of production of different end products. D) at different stages of production of the same end product. 6. Which produces market failure problems in private markets? A) the maximization of consumer satisfaction B) spillover costs and benefits C) allocative efficiency D) productive efficiency 7. A profit-maximizing firm's daily total revenue is \$155 with 3 workers, \$200 with 4 workers, and \$250 with 5 workers. The marginal cost of each worker is \$60 per day. The firm should: A) hire a fifth worker. C) hire more than five workers. B) hire four workers. D) none of the above. 8. Why do skilled workers generally earn more than unskilled workers? A) The demand for unskilled labor is more inelastic than the demand for skilled labor. B) Skilled labor has higher marginal revenue products than unskilled labor. C) The demand for unskilled labor is greater than the demand for skilled labor. D) The supply of skilled labor is greater than the supply of unskilled labor. 9. Other things being the same, if the demand for labor is inelastic: A) decreases in wage rates will result in greater payrolls. B) increases in wage rates will result in greater payrolls. C) decreases in wage rates will increase both employment and worker incomes. D) increases in wage rates will result in smaller payrolls. 10. A characteristic of a purely competitive labor market would be: A) many firms competing in hiring workers. B) firms hiring different types of labor. C) wage maker behavior by the firms. D) price maker behavior by the firms. 11. If a factor of production has many close substitutes, we would expect that its price elasticity of demand would be: A) unity. B) less than one. C) greater than one. D) unimportant because ease of substitution has no effect on the price elasticity of that factor. 12. The demand for a productive resource is said to be "derived" because the demand for the factor: A) depends on the demand for the product it is used to make. B) depends on the demand for a complementary factor. C) is derived from the state of the economy. D) is derived from government policy. 13. A firm's demand curve for labor: A) is its marginal product curve. B) will shift to the left if the price of the product the labor is producing should fall. C) is perfectly elastic if the firm is sel