True-False Questions:

1. A firm that hires workers to maximize profits will also maximize labor productivity.

Answer: False

2. If the demand for labor is price inelastic and the minimum wage exceeds the competitive equilibrium wage, an increase in the minimum wage will increase the total wages of employed workers.

Answer: True

3. A price ceiling that is lower than the competitive equilibrium price will cause excess supply.

Answer: False

Multiple Choice Questions:

4. Ed's bakery can sell as many loaves of bread as it wishes for a
price of $2 per loaf. To keep calculations simple, let us assume that
Ed's only costs are hired labor. If Ed hires 1 worker, he can produce
200 loaves of bread per day. If Ed hires 2 workers, he can produce 350
loaves of bread per day. If he hires 3 workers, he can produce 450
loaves of bread per day. If he hires 4 workers, he can produce 480
loaves of bread per day. If he hires 5 workers, he can produce 500
loaves of bread per day, and if he hires 6 workers, he can produce 510
loaves of bread per day. If he hires 7 or more workers, he can still
produce only 510 loaves of bread per day. If Ed increases his work crew
from 4 workers to 5 workers, his daily revenue will increase by:

(a) $100

(b) $40

(c) $60

(d) $20

(e) $120

Answer: B

5. If each worker that Ed hires must be paid a daily wage of $65,
how many workers should he hire per day to maximize his profits?

(a) 3

(b) 2

(c) 4

(d) 5

(e) 1

Answer: A

6. Ed's demand function for labor looks like a stairway with
horizontal line segments one unit long at heights of:

(a) $200, $350, $450, $480, $500, and $510

(b) $400, $700,$900, $960, $1,000, and $1,020

(c) $400, $300, $200, $60, $40, and $20

(d) $400, $350, $300, $240, $200, and $170

(e) $200, $175, $150, $120, $100, and $85

Answer: C