TEST 1 MARKING KEY2024
.docx
School
University of Botswana-Gaborone**We aren't endorsed by this school
Course
ECO 312
Subject
Economics
Date
Dec 22, 2024
Pages
7
Uploaded by MasterDolphinMaster1047
University of BotswanaFaculty of Social SciencesDepartment of EconomicsECO 312: Microeconomics IIInstructions:1. AnswerALLquestions 2. Write your full names & student ID clearly3. For multiple choice, write your answer inCAPITAL LETTERS4. Total marks = 40 5. TIME: 1 HOUR 30 MINUTESSECTION A: [20 Marks]1.A characteristic of a purely competitive labour market would be:A)"price maker" behaviour by the firms.B)"wage taker" behaviour by workers.C)a few firms competing for labour services.D)significant differences among workers in the level of work skills.Answer: B2.Increases in the productivity of labour result partly from: A)the law of diminishing returns.B)improvements in technology.C)reductions in wage rates.D)increases in the quantity of labour.Answer: B3.In a monopsonistic labour market the employer will maximize profits by employingworkers up to that point at which: A)the difference between the wage rate and marginal resource (labour) cost is at amaximum. B)marginal revenue product equals marginal resource (labour) cost. C)the wage rate equals marginal revenue product. D)the wage rate equals marginal resource (labour) cost. Answer: B4.In pure competition, a profit-maximizing firm will equate the marginal revenue productof labour with the:A)wage rate.B)profits produced by the employment of an extra worker.C)cost of producing one extra unit of output.D)price received from selling one extra unit of output.Answer: A5.If a firm is unable to influence the price of a variable productive resource by buyingmore or less of it, then the marginal cost of the resource is equal to the:A)price of the resource.B)marginal product of the resource.C)price of a unit of the firm's output.
D)minimum average cost of producing the product.Answer: A6.The wages of plumbers are likely to increase when:A)licensing standards for the occupation are increased.B)there is an increase in the cost of plumbing supplies.C)the length of the training period for plumbers is decreased.D)more do-it-yourself home improvement centres open across the nation.Answer: A7.Refer to the graphs below. If union workers decide to take more leisure, while theprices of the products produced by union workers increase, this situation is depicted ingraph:0000Wager at eWager at eWager at eWager at eQ( Labor )Q( Labor )Q( Labor )Q( Labor )SL0SL0SL0SL0DL0DL0DL0DL0SL1SL1SL1SL1DL1DL1DL1( A)( B)( D)( )CA)A. B) B. C) C. D) D.Answer: C8.A large hospital in a relatively small city finds that, if its demand for nurses increases, thewages of nurses will rise. We can say that the hospital: A)is a monopsonist. B)faces a perfectly elastic supply of nurses. C)is functioning in a perfectly competitive labour market. D)will confront a surplus of nurses. Answer: A9.A firm in a purely competitive product market finds it must increase wages to attractextra workers. The firm will hire labour up to the point where the marginal:A)product of labour equals the wage rate.B)revenue product of labour equals the wage rate.C)revenue product of labour starts to decline.D)revenue product equals the cost of hiring an extra worker.Answer: D10.Refer to the graph below. Suppose that a competitive firm in long-run equilibrium faces
a market wage W0as shown. Suddenly, the price of the product it produces increases.If other things remain the same, the short-run effect of this change in price would be to:0MRP2W1WABW2W0MRP3MRP1L0LA) increase the firm's demand for labour from MRP1to MRP3.B)decrease the firm's demand for labour from MRP1to MRP2.C)increase the market wage rate to W1, and decrease the quantity of labourthe firm demands to point A.D)decrease the market wage rate to W2, and increase the quantity of labourthe firm demands to point B.Answer: A11.If the supply of labour in a purely competitive labour market increases, the labour:A)supply curve for a single employer will shift downward.B)supply curve for a single employer will shift upward.C)demand curve for a single employer will shift upward.D)demand curve for a single employer will shift downward.Answer: A12. A firm has a single wage rate. At present 10 workers are employed at P50 per day.Wages are raised to P55 per day to attract an extra worker. The marginal labour costper day is:A)P5. B) P10. C) P55. D) P105.Answer: D13. The individual firm which hires labour under competitive conditions faces a laboursupply curve which:A)slopes downward to the right.C)is perfectly inelastic.B)is perfectly elastic.D)is of unit elasticity.Answer: B14. A firm that is hiring labour in a purely competitive labour market and selling its productin a purely competitive product market will maximize its profit by hiring labour until:A)marginal revenue product is zero.B)marginal revenue product exceeds marginal resource (labour) cost by the greatestamount.C)marginal resource cost is zero.D)marginal revenue product equals marginal resource (labour) cost.Answer: D15.Compared to a purely competitive firm, a monopsonist will pay:A)a higher wage rate to its workers.B)lower wages but hire more workers than the purely competitive firm.
C)lower wage rates and hire fewer workers than the purely competitive firm.D)lower wages while hiring the same quantity of workers as the purely competitive firm.Answer: C16.Which of the following is notcorrect? A)Other things equal, a monopsonist will pay a lower wage rate than will a firm hiringlabour competitively. B)A monopsonistic employer will pay workers a wage rate equal to their MRP. C)A purely competitive seller will pay workers a wage rate equal to their MRP. D)An imperfectly competitive seller will pay workers a wage rate equal to their MRP. Answer: B17. In which of the following market models do demand for labor and marginal revenueproduct of labour diverge? A)monopoly, monopsony, and monopolistic competition B)pure monopoly, monopsony, and pure competition C)pure monopoly only D)monopsony only Answer: A18.Suppose the wage rate = P5, and the marginal revenue product (MRP) of the seventh worker at a yo-yo factory is also equal to P5. The yo-yo industry is originally in a purely competitive situation, but is then monopsonised without changing the MRP of the seventh worker. That means:A)more workers will be hired but they will be paid lower wages.B)more workers will be hired and they will be paid higher wages.C)fewer workers will be hired and they will be paid lower wages.D)fewer workers will be hired and they will be paid higher wages.Answer: C19.Other things being equal, imperfect competition in resource markets results in:A)maximization of society's net welfare.B)efficiency in the allocation of inputs.C)less labour hired than if resource markets were competitive.D)lower prices and higher output in product markets for goods and services.Answer: C20.A firm facing a competitive output market but which is a monopsonist in its labour market would hire the quantity of labour where, given:MRP = marginal revenue productMRC = marginal resource costW = wage rateA)MRP = MRC = W. B) MRP > MRC = W. C) MRP > MRC > W. D) MRP = MRC > W.Answer: DSECTION B: [20 Marks]A.Cleaning services in Ohe, a small village in Kgalagadi North district is provided by several(50) companies which hire cleaners from a perfectly competitive labor market. Thedemand and supply for cleaners are given by the following functions:DL=VMPL=w=380−0.01LSL=AVCL=w=40+0.01Li.Calculate the equilibrium wage rate and the level of employment for security guardsin this town[4 marks]
380−0.01L=40+0.01L;380−40=0.01L+0.01L340=0.02L; L=3400.02=17,000DL;380−0.01(17,000)=380−170=210SL=40+0.01(17,000)=40+170=210Suppose Mr Tau buys all security companies and merges them to form one company,Wayguard Security, and becomes the sole supplier of security services in town. ii.Calculate the equilibrium wage rate and the level of employment for security guardsin this town[4 marks]TR=(380−0.01L)L≡380L−0.01L2MR=380−0.02LTC=(40+0.01L)L≡40L+0.01L2MC=40+0.02LMR=MC≡380−0.02L=40+0.02L380−40=0.02L+0.02L340=0.04L; L=3400.04=8,500DL=380−0.01L=380−0.01(8,500)≡380−85=295iii.Compare the equilibrium wage and level of employment with those obtained (i)aboveIn (i) L=17,000> in (ii) L=8,500In (i) W=210 < in (ii) L=295This says monopoly firm employs fewer labour unit and pays higher wages relativeto perfectly competitive firm which employs more labour units at lower wages.B.With the aid of clearly labelled diagram (s), show and discuss the equilibrium wage andemployment level when there is monopoly in the product market and monopsony in thelabour market.[6 marks]
C.Suppose the wage rate increases from P150/hour to P200/hour, and from P200/hour toP250/hour. The optimal amount of labour consumed rises from 9 hours per day to 12hours per day while leisure decreases from 15 hours per day to 12 hours per day. Whenthe wage rate increases from P200/hour per day to P250/day, the optimal amount oflabour consumed decreases to 10 hours per day while leisure increases to 14 hours perday. Using a clearly labelled diagram (s), show and discuss the substitution effect andincome effect that arise due to the wage increases.[6 marks]