-The above figure shows a competitive firm's demand for labor assuming that the firm's output sells for $1 per unit.If the wage is $5 per hour,a ten cent specific tax on the good sold by the firm will cause the firm to
A) demand less labor.
B) demand more labor.
C) offer its workers only $4.90 per hour.
D) hire 0 units of labor per hour.

Question

-The above figure shows a competitive firm's demand for labor assuming that the firm's output sells for $1 per unit.If the wage is $5 per hour,a ten cent specific tax on the good sold by the firm will cause the firm to
A) demand less labor. 
B) demand more labor. 
C) offer its workers only $4.90 per hour. 
D) hire 0 units of labor per hour.

Quizplus · Accepted Answer

A ten cent specific tax on the good sold by the firm effectively reduces the firm's revenue per unit sold. This reduction in revenue per unit makes producing each unit less profitable, leading the firm to scale back production. To adjust to this decreased level of production, the firm will demand less labor, as labor is a variable cost associated with production levels.

-The Above Figure Shows a Competitive Firm's Demand for Labor