An increase in physical capital or a technological advance

Question

Quizplus · Accepted Answer

An increase in physical capital or a technological advance increases productivity, which shifts the production function upward. This leads to an increase in the output produced by each unit of labor, thus leading to an increase in the demand for labor and the real wage rate. Therefore, option C is correct. Option A is incorrect because an upward shift in the production function indicates an increase in productivity, not a decrease. Option B is incorrect because an increase in productivity would lead to an increase, not a decrease in the quantity of labor employed. Option D is not correct because an increase in productivity would lead to an increase in the demand for labor, not a decrease.

An Increase in Physical Capital or a Technological Advance