In a perfectly competitive industry, do higher wages for labor union members diminish profits?
A)Yes, in the short run, but not in the long run in which some firms exit the industry because of higher costs.
B)Yes, in the long run, but not in the short run because profits are always fixed in the short run.
C)No, higher wage costs can affect profits only if they affect labor productivity and this doesn't happen.
D)No, because higher labor costs usually bring more firms into the industry and this effect dampens price rises.

Question

Quizplus · Accepted Answer

In a perfectly competitive industry, higher wages for labor union members can diminish profits in the short run because firms face higher costs. In the long run, some firms may exit the industry due to these higher costs, which can lead to adjustments in supply and potentially restore profit levels for the remaining firms.

In a Perfectly Competitive Industry, Do Higher Wages for Labor