If the labour slack variable 0, then: A)excess labour capacity exists. B)the shadow price on labour is 0. C)the shadow price on labour is 0.

Question

If the labour slack variable > 0, then:
A)excess labour capacity exists.
B)the shadow price on labour is > 0.
C)the shadow price on labour is < 0.
D)the marginal revenue product of labour > 0.

Quizplus · Accepted Answer

Labour slack refers to the gap between the actual and required amount of labour. If the labour slack variable is > 0, it means that there is excess labour capacity available in the market. This implies that there are more workers seeking jobs than there are employment opportunities. Hence, the best choice is A - excess labour capacity exists. Labour slack refers to the difference between the actual number of employees and the optimum number of employees required for efficient production. If the labour slack variable is greater than zero, it means that the actual number of employees is less than the optimal number, which indicates that there is excess labour capacity or underutilization of labour resources.

If the Labour Slack Variable > 0, Then