Below is a graphical illustration of Nearly Done Inc.'s marginal revenue product.The firm employs its labour in a perfectly competitive labour market.

-Suppose that the supply of labour is upward sloping and the marginal product of labour increases.Which of the following statements is correct?
A)The wage rate will increase.
B)The wage rate will decrease.
C)The supply of labour curve will shift to the left.
D)The supply of labour curve will shift to the right.

Question

Below is a graphical illustration of Nearly Done Inc.'s marginal revenue product.The firm employs its labour in a perfectly competitive labour market.
 
-Suppose that the supply of labour is upward sloping and the marginal product of labour increases.Which of the following statements is correct?
A)The wage rate will increase. 
B)The wage rate will decrease. 
C)The supply of labour curve will shift to the left. 
D)The supply of labour curve will shift to the right.

Quizplus · Accepted Answer

When the marginal product of labour increases, the demand for labour increases. As the supply of labour is upward sloping, this will mean that there will be a shortage of labour at the current wage rate. To attract more labour, the firm will have to offer a higher wage rate. Therefore, the wage rate will increase.

Below Is a Graphical Illustration of Nearly Done Inc