Assume that Creative Ceramics can vary both capital and labor. An increase in the amount of capital will
A) have no impact on the productivity of labor.
B) cause the firm to move down along the marginal revenue product of labor curve and hire more labor.
C) cause the marginal revenue product of labor curve to be more inelastic.
D) shift the marginal revenue product of labor curve out to the right.

Question

Quizplus · Accepted Answer

An increase in the amount of capital will shift the production function up and to the right, which will increase the marginal product of labor and shift the marginal revenue product of labor curve out to the right. This means that the firm will be able to hire more labor at a higher wage rate, which is likely to increase the productivity of the labor force. Therefore, the correct answer is D.

Assume That Creative Ceramics Can Vary Both Capital and Labor