Chapter 10

Question 1

What is the Law of Diminishing Returns?

Answer 1

As more labor is used, the extra output an employee can produce declines at some point and production falls as more employees are hired.

Question 2

What is Value Marginal Product?

Answer 2

The marginal product of a worker multiplied by the product output.

Question 3

For every label cost, we look at the Value Marginal Product,

Answer 3

this means that the VMP is the demand curve in a labor market.

Question 4

The Labor demand curve comes from employee productivity and the product price and

Answer 4

the labor supply curve comes from employee’s willingness to work at various wages

Question 5

If workers have non-labor opportunities (welfare, social security),

Answer 5

labor suplly falls, resulting in unemployment and higher wages.

Question 6

Education and training help improve productivity and building human capital

Answer 6

raising the demand for labor