Ch9A - ECO 105 Principles of Economic Theory Chapter 9...

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ECO 105: Principles of Economic Theory Chapter 9 Answer Key for Sample Multiple-Choice Questions 1. d) is the correct answer. While it is true that resource demand is a derived demand, in general, the quantity of a resource demanded by firms falls as the price of the resource rises. a), b), and c) are all true of the resource market. 2. b) is the correct answer. The demand for a resource is a derived demand because it depends on the demand for the final product. As the demand for the final product (shoes) rises, the firm needs to employ more of the resource (leather). Thus, the demand for leather is derived from the demand for shoes. 3. a) is the correct answer. As the demand for the firm’s product falls, the firm will produce less and therefore purchase less of each resource. 4. b) is the correct answer. So long as the increase in revenues is greater than the increase in costs, the firm will increase its total profits by employing more of the resource. This process will stop when the increase in revenue is exactly equal to the increase in costs. 5. d) is the correct answer. Marginal revenue product equals MPP x Price of output = 20 units x $1/unit = $20. 6. d) is the correct answer. Since the marginal physical product of the second worker is 15 units, the total product of the two workers is 20 + 15 = 35 units.
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