Reducing Long-Run Labor Usage

The following questions refer to the accompanying diagram, which shows a firm reducing its long-run labor usage from L0 to L1 in response to an increase in the wage rate.

-Refer to Reducing Long-Run Labor Usage.The scale effect of the wage change is the movement from point

Question

Reducing Long-Run Labor Usage

The following questions refer to the accompanying diagram, which shows a firm reducing its long-run labor usage from L0 to L1 in response to an increase in the wage rate.

-Refer to Reducing Long-Run Labor Usage.The scale effect of the wage change is the movement from point

Quizplus · Accepted Answer

The scale effect refers to the change in labor usage resulting from changes in production scale or output. In this scenario, the wage change leads to a decrease in labor usage in the long run, as firms look to substitute capital for labor. This movement from point B to point C represents the decrease in labor usage as the firm increases production scale by substituting capital for labor. Therefore, the best choice is C.