An increase in productivity will cause which of the following according to the price- setting behaviour of firms?
A) An increase in the markup set by firms.
B) An increase in the level of employment protection set by the government.
C) An increase in the prices set by firms.
D) An increase in the minimum wage paid by firms.
E) An increase in the real wage paid by firms.

Question

Quizplus · Accepted Answer

An increase in productivity allows firms to produce more with the same amount of inputs, which often leads to higher profits. Firms may then be able to afford paying higher real wages to their employees without needing to increase prices, hence increasing the real wage paid by firms.

An Increase in Productivity Will Cause Which of the Following