-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 per unit subsidy on the good sold by the firm will cause the firm to
A)demand less labor.
B)demand more labor.
C)raise the wage for workers to $5.10.
D)None of the above.

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 per unit subsidy on the good sold by the firm will cause the firm to
A)demand less labor. 
B)demand more labor. 
C)raise the wage for workers to $5.10. 
D)None of the above.

Quizplus · Accepted Answer

A subsidy per unit sold increases the revenue per unit, making production more profitable. This incentivizes the firm to produce more, which typically requires hiring more labor, hence increasing the demand for labor.

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