If the supply of labor decreases, which of the following events will occur?
A) The wage rate will fall and firms will increase employment up until the point where MRP equals the new wage rate.
B) The wage rate will fall and firms will decrease employment to the point where MRP equals the new wage rate.
C) The wage rate will increase and firms will decrease employment to the point where MRP equals the new wage rate.
D) The wage rate will increase and firms will increase employment up until the point where MRP equals the new wage rate.

Question

Quizplus · Accepted Answer

A decrease in the supply of labor typically leads to an increase in the wage rate because labor becomes scarcer. Firms will then decrease employment to adjust to the higher wage costs, aligning employment levels where the marginal revenue product (MRP) of labor equals the new, higher wage rate.

If the Supply of Labor Decreases, Which of the Following