Refer to the above graph.It shows a firm that buys its inputs and sells its output in competitive markets.If labor productivity decreases,the equilibrium level of employment for this firm is expected to be: A) L₀. B) zero. C) lower than L₀. D) higher than L₀.

Question

Quizplus · Accepted Answer

If labor productivity decreases, the cost of producing each unit of output will increase. This will lead to a decrease in the marginal revenue product of labor and a decrease in the demand for labor. As a result, the equilibrium level of employment will decrease, causing a shift from L₀ to a lower level of employment on the graph. Therefore, the answer is C.

Refer to the Above Graph