FIGURE 13- 3 The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets.

-Refer to Figure 13- 3.If the supply and demand curves for the factor are as shown in the diagram,but the wage being paid is $9,and the market is at point C,
A)the demand curve will shift to the left until equilibrium factor price and quantity are re- established.
B)the demand curve will shift to the right until equilibrium factor price and quantity are re- established.
C)the marginal revenue product is not equal to the marginal cost of the factor and firms will increase the amount of the factor employed.
D)the wage is higher than the factor's marginal product,and firms will reduce the amount of the factor employed.
E)the wage is higher than the factor's marginal revenue product,and firms will reduce the amount of the factor employed.

Question

FIGURE 13- 3 The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets.
 
-Refer to Figure 13- 3.If the supply and demand curves for the factor are as shown in the diagram,but the wage being paid is $9,and the market is at point C,
A)the demand curve will shift to the left until equilibrium factor price and quantity are re- established. 
B)the demand curve will shift to the right until equilibrium factor price and quantity are re- established. 
C)the marginal revenue product is not equal to the marginal cost of the factor and firms will increase the amount of the factor employed. 
D)the wage is higher than the factor's marginal product,and firms will reduce the amount of the factor employed. 
E)the wage is higher than the factor's marginal revenue product,and firms will reduce the amount of the factor employed.

Quizplus · Accepted Answer

At point C, the wage being paid ($9) is higher than the factor's marginal revenue product, which is the value of the additional output generated by each additional unit of the factor. This means that firms are paying more for the factor than it is worth to them, so they will reduce the amount of the factor employed to lower their costs and maintain profitability. As firms reduce the amount of the factor employed, the supply curve will shift to the left until equilibrium factor price and quantity are re-established.

FIGURE 13- 3 the Demand and Supply Curves Shown Below