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Sample Exam2 Questions - Sample Exam 2 Questions 1 The...

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Sample Exam 2 Questions 1. The marginal revenue product curve of a firm operating in a competitive labor market and in a competitive product market slopes downward because (a) the marginal revenue decreases as more labor is hired. (b) the marginal product of labor decreases as more labor is hired. (c) the firm faces a downward-sloped marginal cost of labor curve. (d) the firm faces a constant wage, regardless of how much labor it employs. (e) The firm doesn’t use capital in the production process. 2. Consider the following table. Table 1: E Q 0 0 1 3 2 7 3 12 4 20 5 31 6 36 7 40 8 43 9 45 10 46 Suppose that the labor market and the product market are competitive. Let the price at which the firm sells its output be p = $4 per unit and let the rental rate of capital r = $1 per unit of capital. For simplicity assume that the firm employs 5 units of capital. If the wage rate is w = $18 per unit of labor, how many units of labor should the firm hire to maximize its profit?
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