If you doubt that an employer can get away with such rampant exploitation, I give you a
four-letter response: N-C-A-A. A big-time college star athlete might produce, over the
course of a four-year career, millions of dollars in revenue to a university. Even if we include
the value of four years of tuition, room, and board, the star athlete is compensated well
below his or her marginal revenue product. Is it so crazy that many talented college athletes
make an early jump to a professional league or in some cases skip college altogether?á Review Questions
Factor Markets ‹ 151- Your aunt runs a small firm from her home
making apple pies. She hires some friends to help
her. Which of the following situations would
most likely increase her demand for labor?
(A) The price of apple peelers/corers rises.
(B) Your aunt’s friends gossip all day, slowing
their dough-making process.
(C) There is a sale on ovens.
(D) A new study reveals that apples increase your
risk of cancer.
(E) The price of apples increases.- The price of labor is $2, and the price of capital
is $1. The marginal product of labor is 200, and
the marginal product of capital is 50. What
should the firm do?
(A) Increase capital and decrease labor so that the
marginal product of capital falls and the mar-
ginal product of labor rises.
(B) Increase capital and decrease labor so that the
marginal product of capital rises and the
marginal product of labor falls.
(C) Decrease capital and increase labor so that
the marginal product of capital rises and the
marginal product of labor falls.
(D) Decrease capital and increase labor so that
the marginal product of capital falls and the
marginal product of labor rises.
(E) Increase both capital and labor until the ratio
of marginal products per dollar is equal.- A competitive labor market is currently in equi-
librium. Which of the following most likely
increases the market wage?
(A) More students graduate with the necessary
skills for this labor market.
(B) Demand for the good produced by this labor
is stronger.
(C) The price of a complementary resource
increases.(D) The Department of Labor removes the need
for workers to pass an exam before they can
work in this field.
(E) Over time, one large employer grows to act as
a monopsonist.Use Table 10.6 to respond to questions 4 and 5.Table 10.6MARGINAL MARGINAL
FACTOR REVENUE
WAGE QUANTITY COST OF PRODUCT
(W) OF LABOR LABOR OF LABOR
SUPPLIED (MFC) (MRPL)
$3 0
$4 10 $4 $10$5 20 $6 $9
$6 30 $8 $8$7 40 $10 $7- If a firm is hiring labor in the perfectly competi-
tive labor market, the wage and employment are
(A) $3 and zero.
(B) $4 and 10.
(C) $5 and 20.
(D) $6 and 30.
(E) $7 and 40.- If a firm hires labor in a monopsony labor
market, the wage and employment are
(A) $3 and zero.
(B) $4 and 10.
(C) $5 and 20.
(D) $6 and 30.
(E) $7 and 40.