ECO 365 Exam Guide: Labor Curve and Workforce Topics

ECO 365 Final Exam Answer Guide for the Labor Curve

The labor curve is one of the most interesting topics in microeconomics because it behaves in a very unique manner. As labor hours increase wage go up… but after wages get too high, the labor curve starts to bend backwards. Why? It is a result of people choosing to work fewer hours as the marginal benefit of additional income decreases. 

Ross and Vivian produce butter and cheese

Suppose both Ross and Vivian produce butter and cheese. When Ross works for 10 hours a day, he produces 6 pounds of butter and 24 pounds of cheese. When Vivian works for the same hours, she produces 20 pounds of cheese and 40 pounds of butter. Ross’s opportunity cost of producing a pound of butter is:

4 pounds of cheese

Explanation: First of all, you can ignore everything about Vivian, as we only need Ross’s information to solve this question. Ross’s ratio of butter to cheese production is 6 to 24 or (0.25).  So the opportunity cost is 1/0.25 or 4 pounds of cheese.

A firm Decides to Hire an Additional Worker

Given an increase in the market demand for its product, a firm decides to hire an additional worker. The amount of output produced by 25 workers is 80 units. The marginal product of the 26 worker is 15 units. After the 26 worker is hired, the total output would increase to

95 Units

Explanation: Marginal output is simply the amount of output added for an additional input.  To get the total output, we just add the marginal amount (15) to the previous total (80), giving us a grand total of 95 units of output.

Citizens of Serria

Recent political unrest has caused many citizens of Serria to flee the country. This is likely to

increase the equilibrium wage rate in the labor market in Serria.

Explanation: This situation would cause a shortage of workers in Serria, thus the demand and wage rate would rise, assuming all other factors are equal.

Monica and Edith Grow Roses and Make Guns

Suppose both Monica and Edith grow roses and make guns. If Monica devotes 10 hours to growing roses, she grows 16 roses, and if she devotes 10 hours to making guns, she produces 4 guns. If Edith divides her 10 hours equally, she produces 12 roses and 6 guns. Identify the correct statement.

Monica has an absolute advantage in growing roses, and Edith has an absolute advantage in making guns

 
  • Student: Sandy Lopez
  • Textbook:  Principles of Microeconomics
  • Course: ECO 365 Microeconomics 2017 Final Exam
 

Explore all ECO365 Final Exam Topics

Master microeconomics with our full final exam study guide. 

 

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