Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

290 INPUT PRICING AND EMPLOYMENT [CHAP. 13
Rent A payment which need not be made in the long run in order to bring forth the supply of an input.
Value of the marginal product of an input (VMP) The marginal product of the input times the price of the final
commodity. For input A and. commodity X, VMP a ¼ MP a
.P x .
Review Questions
1. A firm operating in perfectly competitive product and input markets maximizes its total profits when
(a)
P x ¼ MC x and MC x is rising,
(b)
(c)
(d )
MP a
P a
MP a
P a
MP a
P a
¼ MP b
P b
,
¼ MP b
P b
¼ 1
MC x
,or
¼ MP b
P b
¼ 1
MC x
¼ 1 P x
.
Ans. (d ) See Section 13.1.
2. If input A is the only variable input for a perfectly competitive firm in the product market, the firm’s demand curve
for input A is given by its (a) VMP a curve, (b) MP a curve, (c) MRC a curve, or (d ) none of the above.
Ans. (a) See Section 13.2.
3. In order to get the demand curve for a firm for one of several variable inputs, we must consider (a) the internal effect
of the change in the input price, (b) the external effect of the change in the input price, (c) monopolistic exploitation,
or (d ) monopolistic exploitation.
Ans. (a) See Example 2.
4. Consideration of the external effect of a fall in the input price will make the market demand curve of the input
(a) vertical, (b) more elastic than otherwise, (c) less elastic than otherwise, or (d ) will have no effect on the elasticity
of the market demand curve for the input.
Ans. (c) For example, when we consider the external effect of the reduction in P a from $8 to $4 per unit, the
increase in QD a in Fig. 13-2 is only 300 units rather than 500 units.
5. When the market supply curve of input A (S a ) is positively sloped, (a) QS a is fixed regardless of P a ,(b) D a alone
determines the equilibrium P a ,(c) the intersection of D a and S a determines the equilibrium P a but not the equilibrium
Q a ,or(d ) the intersection of D a and S a determines both the equilibrium P a and Q a .
Ans. (d ) See Example 4.
6. When S a has zero (price) elasticity, (a) QS a is fixed regardless of P a ,(b) the D a curve alone determines the equilibrium
P a (given the level at which QS a is fixed), (c) the entire payment received by input A is a rent, or (d ) all of the
above are true.
Ans. (d ) See Section 13.7.
7. Quasi-rent is (a) equal to the firm’s total profit, (b) greater than the firm’s total profits, (c) smaller than the firm’s
total profits, or (d ) any of the above is possible.
Ans. (b) Quasi-rent equals TR less TVC; total profits equal TR less TC. In the short run, TC exceeds TVC by the
TFC; therefore, quasi-rent exceeds total profits by an amount equal to the firm’s TFC.