If a firm increases its capital stock, real wages will likely ________ and the equilibrium quantity of labor will likely ________.

Question

Quizplus · Accepted Answer

When a firm increases its capital stock, it becomes more productive and can afford to pay higher wages. This leads to an increase in real wages. Additionally, the firm can hire more workers due to its increased productivity, which increases the equilibrium quantity of labor. Therefore, the correct option is (A) increase; increase.

If a Firm Increases Its Capital Stock, Real Wages Will