The size of the reduction in quantity of labor hired by a firm due to an increase in the wage rate depends upon all of the following except
A)what percentage of total costs are made up of labor costs.
B)how much quantity demanded in the output market will be reduced by a higher price.
C)the capital to labor ratio before the wage increase.
D)how easily other inputs can be substituted for labor.

Question

Quizplus · Accepted Answer

The capital to labor ratio before the wage increase does not directly affect the size of the reduction in quantity of labor hired due to an increase in the wage rate. Factors such as the percentage of total costs made up of labor costs, the elasticity of demand for the output, and the ease of substituting other inputs for labor are more directly relevant.

The Size of the Reduction in Quantity of Labor Hired