Unit 5: Factor Markets
Micro · Unit 5 · Paper 1

Factor Markets unit test

A test on this unit alone, marked as a percentage and a letter grade — for the test your class is actually sitting, rather than for May. Answer everything, then submit once: seeing the answer to question 3 before attempting question 4 makes the final percentage meaningless.

Paper 1Paper 2Paper 3
Each paper is built from this unit’s 20 terms and is the same for everyone, so a teacher can assign “Unit 5, Paper 1” and every student sits the identical test. Multiple choice is marked objectively; the written sections you mark yourself against the model answer and rubric.
Suggested time 37 min 34 points0/17 attempted
1

Labor supply curve for an individual

2

Wage differentials

3

Marginal resource cost (MRC)

4

Derived demand

5

Perfectly competitive labor market

6

Why MRC lies above supply for a monopsonist

7

Compensating differential

8

Market vs firm graph in factor markets

9

Monopsony outcome

10

Shifters of labor supply

11

Profit-maximizing combination of inputs

12

Economic rent

Short answer 1. Define or explain: Profit-maximizing hiring rule

3 pts

Short answer 2. Define or explain: Least-cost combination rule

3 pts

Short answer 3. Define or explain: Minimum wage under monopsony

3 pts

Short answer 4. Define or explain: Marginal revenue product (MRP)

3 pts

Free response

10 pts

This course has no free-response prompt tagged to this unit, so one from elsewhere in the course is used. It is still worth writing — the skill transfers.

LONG FREE-RESPONSE. Vantis Pharmaceuticals holds a patent and is the sole seller of a medication. Market demand is P = 120 − 2Q, and the firm’s marginal cost and average total cost are both constant at $40 per unit.

Draw a correctly labeled graph showing the demand, marginal revenue, and marginal cost curves for Vantis.

Calculate the profit-maximizing quantity and price, showing your work.

Calculate the firm’s economic profit.

Calculate consumer surplus at the monopoly price.

Identify the allocatively efficient quantity and explain why the monopoly outcome is not allocatively efficient.

Calculate the deadweight loss and shade it on your graph.

Suppose a regulator imposes a price ceiling of $40 per unit. Explain the effect on quantity, on economic profit, and on deadweight loss.