MITBch15 - CHAPTER 15 1PRICING THE FACTORS OF PRODUCTION...

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C HAPTER 15 1P RICING THE FACTORS OF PRODUCTION TRUE-FALSE QUESTIONS THE PRINCIPLE OF MARGINAL PRODUCTIVITY 1. MRP is the value of the income from the sale of the marginal physical product. ANSWER: T, E, R 2. MPP is the additional output that results from a one-unit increase in use of the input. ANSWER: T, E, R 3. A profit-maximizing firm will hire inputs until MRP = P of the input. ANSWER: T, E, A 4. The marginal revenue product of an input is the marginal physical product times the price per unit  of output under perfect competition. ANSWER: T, E, R 5. If marginal revenue product is less than price, the firm should use more of the input. ANSWER: F, M, R 6. The distribution of income in a market economy is determined by the minimum wage laws. ANSWER: F, E, A 7. The quantity demanded of an input normally rises as its price rises. ANSWER: F, E, A INPUTS AND THEIR DERIVED DEMAND CURVES 8. Demand for an input is derived from the demand for the product. ANSWER: T, E, A 9. The demand curve for any input is the MP curve. ANSWER: F, M, R 10. The demand curve for any input is the downward-sloping portion of its marginal revenue product  curve. ANSWER: T, M, R 11. If the supply curve remains constant, an outward shift in the demand curve for a commodity causes  the price of factors used in its production to decline. ANSWER: F, D, I 194
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195 Chapter 15/Pricing the factors of production 12. An inward shift of the demand curve for a product causes outward shifts in the demand curves for  all the factors used to produce the product. ANSWER: F, M, A 13. The demand for borrowed funds is a derived demand. ANSWER: T, M, A INVESTMENT, CAPITAL, AND INTEREST 14. Investment is a flow of resources into the production of new capital. ANSWER: T, M, R 15. Capital refers to an inventory or a stock of productive equipment and machines. ANSWER: T, M, R 16. Capital is a flow of resources into the production of investment goods. ANSWER: F, M, R 17. The nation’s stock of capital can increase only when net new investment takes place. ANSWER: T, M, A 18. Interest is the payment for the use of funds. ANSWER: T, E, R 19. The rate of interest is the price at which money is borrowed and loaned. ANSWER: T, M, R 20. Interest is the payment for the use of funds used to produce capital. ANSWER: T, M, R 21. The difference in values between money today and money in the future is lower when the rate of  interest is higher.
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