Question 1
Refer to the information provided in Figure 10.3 below to answer the question(s) that follow.
Refer to Figure 10.3. The market wage is initially
W
1 and the firm is initially at Point
B. Labor supply increases from
S
1 to
S
0. If the firm does not change the amount of capital it employs, the firm will move to Point ________ to maximize profits.
◦
A ◦
C ◦
E ◦
F Question 2
Refer to the information provided in Figure 10.3 below to answer the question(s) that follow.
Refer to Figure 10.3. The market wage is initially
W
1 and the firm is initially at Point
B. Labor supply increases from
S
1 to
S
0. The firmʹs
MRPL curve will shift from
MRPL at
K
2 to
MRPL at
K
1 because
◦ the factor substitution effect will cause the firm to substitute capital for the lower-priced labor.
◦ the supply of labor increased and therefore the productivity of labor increased.
◦ the output effect led to ann increase in the demand for capital, which in turn increased the productivity of labor.
◦ the firm is no longer maximizing profits.
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