An industry would be likely to lay off workers following
A) an increase in the price of the firm's product.
B) an increase in the marginal revenue product of labor.
C) the imposition of a new minimum wage below the current equilibrium wage.
D) an industrial union's push of wages above the MRP of labor.

Question

Quizplus · Accepted Answer

If an industrial union pushes for wages above the MRP of labor, it will increase labor costs for the firm, leading to a decrease in profits. To maintain profits, the firm may lay off workers to reduce labor costs. The other choices do not necessarily lead to layoffs. An increase in the price of the firm's product (A) may lead to higher profits and possibly even an expansion of the workforce. Similarly, an increase in the marginal revenue product of labor (B) would make workers more valuable to the firm and could lead to hiring rather than layoffs. The imposition of a new minimum wage below the current equilibrium wage (C) may lead to a small increase in employment as firms substitute cheaper labor for more expensive labor, but it is unlikely to result in layoffs.

An Industry Would Be Likely to Lay Off Workers Following