Question

1. The marginal rate of technical substitution at any particular labor-capital bundle is

A.	the slope of the isoquant.

B.	the average product of labor relative to the average product of capital.

C.	the wage relative to the cost of capital.

D.	the slope of the indifference curve.

E.	the ratio of labor to capital.

2. The cross-elasticity of labor with respect to capital is

A.	the change in labor relative to a change in capital.

B.	the change in wages relative to a change in the price of capital.

C.	the percent change in labor relative to a percent change in capital.

D.	the percent change in wages relative to a percent change in the price of capital.

E.	the percent change in labor relative to a percent change in the price of capital.

3. If the minimum wage applies to one sector (the covered sector) but not another sector (the uncovered sector), an increase in the minimum wage in the covered sector is likely to result in which of the following?

A.	Greater employment in the covered sector.

B.	Less employment in the uncovered sector.

C.	A lower wage in the covered sector.

D.	A lower wage in the uncovered sector.

E.	Workers willingly leaving the covered sector for the uncovered sector in search of higher wages.

4. Adjustment costs are those costs

A.	incurred by a firm as it transports its product from the factory to the marketplace.

B.	incurred by a firm when it pays its workers overtime.

C.	incurred by a firm as it changes the size of its workforce.

D.	saved by a firm as it takes advantage of tax credits offered by the government.
E.	saved by the firm when it fires a worker.

Answer 1

Q1. A

MRTS is the slope of isoquant. It shows the rate at which on factor of production must decrease in order to maintain the production considering other factor is increased. Isoquant is basically the curve representing the different combination of inputs leading to same amount of output.

Q2. E

Cross elasticity of labor with repect to capital indicates the percent change in labor relative to a percent change in the price of capital. It shows the movement in labor demand as capital price changes in the market.

Q3. E

This is because in the covered sector, due to an increase in the wage level many workers will loose the jobs. The reason being firms will have to pay more wages to workers in the covered sector. Thus those unemployed labor will move to uncovered sector in search of jobs and wages.

Q4. C

Adjustment costs are the cost associated with making changes in the production process. Change in the number of workers to achieve more efficiency is a part of adjustment cost