If wage increases exceed productivity increases and firms make no adjustments in their hiring of productive factors, it is reasonable to expect that firms will have to
raise final goods prices or suffer a decline in profits.

Question

If wage increases exceed productivity increases and firms make no adjustments in their hiring of productive factors, it is reasonable to expect that firms will have to
 raise final goods prices or suffer a decline in profits.

Quizplus · Accepted Answer

When wage increases outpace productivity gains without adjustments in hiring, firms face higher labor costs per unit of output. To maintain profit margins, they may raise prices of final goods or absorb the cost, leading to reduced profits.

If Wage Increases Exceed Productivity Increases and Firms Make No