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 36 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 34 min 31 points0/17 attempted
1

Compensating differential

2

Why MRC lies above supply for a monopsonist

3

Input substitution

4

Labor supply curve for an individual

5

Wage differentials

6

How licensing raises wages

7

The hiring rule

8

Why MFC exceeds the wage under monopsony

9

Derived demand

10

The monopsony two-step

11

Shifters of labor demand

12

Monopsony outcome

Short answer 1. Define or explain: Shifters of labor supply

3 pts

Short answer 2. Define or explain: Marginal revenue product (MRP)

3 pts

Short answer 3. Define or explain: MRP

3 pts

Short answer 4. Define or explain: Minimum wage in a competitive market

3 pts

Free response

7 pts

A firm is the only significant employer of a particular type of labor in its region. The labor supply schedule is: 1 worker at $14, 2 at $16, 3 at $18, 4 at $20, 5 at $22 per hour. The marginal revenue product of the first five workers is $34, $30, $26, $22, $18 per hour. (a) Construct the marginal factor cost schedule. Show your work for at least two entries. (b) Determine how many workers the firm hires and the wage it pays. Explain why the wage is read from the supply schedule rather than from marginal factor cost. (c) Identify how many workers would be hired and at what wage if this were instead a perfectly competitive labor market, and explain the difference. (d) A minimum wage of $20 per hour is imposed. Determine the effect on employment and explain why this differs from the effect of a minimum wage in a competitive labor market.

Construct the marginal factor cost schedule, showing work.

Determine employment and the wage, and explain why the wage comes from the supply schedule.

Identify the competitive outcome and explain the difference.

Determine the effect of a $20 minimum wage and explain why it differs from the competitive case.