A firm is both hiring labor and selling output in purely competitive markets and is maximizing profits. It is currently operating in the elastic range of its MRP curve. If the wage rate increases, its total spending on wages at the new equilibrium will
A)be larger.
B)be smaller.
C)be unchanged.
D)change in an undetermined direction.

Question

Quizplus · Accepted Answer

In the elastic range of the MRP (Marginal Revenue Product) curve, an increase in the wage rate leads to a decrease in the quantity of labor hired that is proportionally larger than the increase in the wage rate. This results in a decrease in total spending on wages.

A Firm Is Both Hiring Labor and Selling Output in Purely