A firm is both hiring labor and selling output in purely competitive markets and is maximizing profits. It is currently operating in the elastic range of its MRP curve. If the wage rate increases, its total spending on wages at the new equilibrium will
A) be larger.
B) be smaller.
C) be unchanged.
D) change in an undetermined direction.

Question

Quizplus · Accepted Answer

In the elastic range of the MRP curve, an increase in the wage rate will lead to a proportionally larger decrease in the quantity of labor demanded, resulting in a smaller total spending on wages.

A Firm Is Both Hiring Labor and Selling Output in Purely