Because the productivity of labor decreases as the quantity of labor employed increases,

Question

Quizplus · Accepted Answer

This is a basic principle of labor demand. As the real wage rate decreases, the firm can afford to hire more workers for the same cost, so the quantity of labor demanded increases. Option A is incorrect because the aggregate production function is not affected by wage rates, but by factors like technology and capital. Option C is incorrect because the labor demand curve itself does not shift, but the movement along the curve changes as the wage rate changes. Option D is incorrect because the quantity of labor demanded is determined by the real wage rate, not the money wage rate.

Because the Productivity of Labor Decreases as the Quantity of Labor