If only one firm in an industry could take advantage of a reduced wage and all other firms continue paying the old wage, how would one best describe the one firm's reaction to this reduced wage assuming labor is the only variable input? The marginal revenue product of labor curve:
A) would remain unchanged, and the firm would hire more labor at the lower wage.
B) shifts to the left, and the firm hires more labor at the lower wage on the new curve.
C) shifts to the right, and the firm hires more labor at the lower wage on the new curve.
D) shifts to the left, and the firm hires less labor at the lower wage on the new curve.
E) shifts to the right, and the firm hires less labor at the lower wage on the new curve.

Question

Quizplus · Accepted Answer

The marginal revenue product of labor curve represents the additional revenue a firm generates from hiring an additional unit of labor. If a firm can pay a reduced wage while all other conditions remain the same, its cost of production decreases, but the productivity and revenue generated by each worker do not change. Therefore, the marginal revenue product of labor curve stays the same, but the firm would hire more labor because it can now do so at a lower cost, increasing its profit margin.

If Only One Firm in an Industry Could Take Advantage