Chapter: Pricing the Factors of Production
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1. The basic principle that explains the demand for a factor of production is the
a. principle of marginal productivity.
b. Hotelling principle.
c. principle of opportunity cost.
d. Ramsey pricing principle.
2. According to the principle of marginal productivity, the quantity of an input demanded depends on
a. the price of the input.
b. the price of outputs in which the input is used.
c. the technology of production.
d. All of the above are correct.
3. Mr. Paque is a bear hunter for timber companies that want to diminish damage to trees done by bears in the spring. Due to a reduction in the bear population between 1975 and 1995, Mr. Paque finds fewer bears each year and additional hours spent hunting produce fewer additional bears. The change in Mr. Paque's MPP curve between 1975 and 1985 is best illustrated by which panel in Figure 15-1?
a. 1
b. 2
c. 3
d. 4
4. The one feature of capital that makes it unlike most inputs is that
a. it is durable.
b. it is productive
c. it is an economic good.
d. it is used to produce only consumer goods.
5. The interest rate is determined by
a. the supply and demand of loanable funds.
b. the supply and demand of land.
c. the supply and demand of marginal land.
d. None of the above is correct.
6. Which of the following is not a loan of funds?
a. home mortgage
b. government bond
c. corporate stock
d. corporate bond
7. Equilibrium in the market for funds occurs when the
a. lenders and borrowers are mutually satisfied at some interest rate.
b. marginal revenue product of investment using the funds equals the interest rate.
c. demand curve for funds and the supply curve for funds intersect.
d. All of the answers above are correct.
8. Which panel in the figure below represents the case of an effective usury law?
a. 1
b. 2
c. 3
d. 4
9. The theory of land rent holds that
a. capital invested on any plot of land must yield the same return as capital invested on any other plot of land.
b. the difference between the costs of producing on any two pieces of land must equal the difference between their rents.
c. marginal land earns no rent.
d. All of the above are part of the theory of land rent.
10. Which of the following have been suggested as sources of economic profit?
a. Exercise of monopoly power by firms
b. Accepting a large degree of risk
c. Successful innovation
d. All of the above
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