If the supply of labor increases, which of the following events will occur?
A) The wage rate will fall and firms will increase employment up until the point where MRP equals the new wage rate.
B) The wage rate will fall and firms will decrease employment to the point where MRP equals the new wage rate.
C) The wage rate will increase and firms will decrease employment to the point where MRP equals the new wage rate.
D) The wage rate will increase and firms will increase employment up until the point where MRP equals the new wage rate.

Question

Quizplus · Accepted Answer

When the supply of labor increases, the wage rate typically falls because there is more labor available than before. Firms will then increase employment because they can hire more workers at a lower cost, continuing to do so until the marginal revenue product (MRP) of the last worker hired equals the new, lower wage rate.

If the Supply of Labor Increases, Which of the Following