1. If the ratio between the price of labor and the price of capital (w/r) is sma
ID: 1126137 • Letter: 1
Question
1.
If the ratio between the price of labor and the price of capital (w/r) is smaller than the ratio between marginal product of labor and marginal product of capital (MPL/MPK)
the firm should hire more labor
the firm should hire more capital
the firm should hire capital and labor equally
the firm should reduce the amount of labor while keeping its capital constant
2.
Suppose the price of one unit of labor (wage) is $15 where its marginal product is 5 units of output. Thus we can say:
the marginal revenue the firm is greater than $5
the marginal cost of the firm is $5.
the marginal cost of the firm is $0.33
the marginal cost of the firm must be greater than its average cost
3.
In a kinked demand curve model, it is assumed that the demand curve faced by an oligopoly:
is less elastic when the firm raises the price
is less elastic when the firm lowers the price
is more elastic when it lowers the price
none of the above
4.
One explanation for the relative price stability in an oligopolistic market is the existence of some degree of decision interdependency among the firms in the market.
True
False
5.
Collusion among oligopolies leads to the formation of
a competitive price
a monopolistically competitive market
a labor union
a cartel
6.
Optimal markups vary across markets due to differences in:
production costs
price elasticity of demand
total revenue
"a" and "b"
"b" and "c"
a.the firm should hire more labor
b.the firm should hire more capital
c.the firm should hire capital and labor equally
d.the firm should reduce the amount of labor while keeping its capital constant
Explanation / Answer
1> the firm should hire more capital
Reason
Since the capital is relatively cheaper, the firm should start buying it more.
2> the marginal cost of the firm must be greater than its average cost
Reason
The marginal cost must be greater than the avg cost because the wage rate is very high compared to marginal product.
3> is less elastic when the firm lowers the price
Reason
In kinked demand curve, the elasticity of demand depends on the price of it.
4> False
Oligopolitic market is very interdependent, so the players/firms do not make independent decisions.
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