Suppose there are four industries. Labor costs are 70 percent of total costs in industry A, 80 percent in B, 45 percent in C, and 10 percent in D. In which of these industries will a 10 percent increase in the price of labor reduce quantity demanded of labor by the largest proportion?

Question

Quizplus · Accepted Answer

Industry B has the highest labor cost percentage, meaning that a 10 percent increase in labor cost would have the most significant impact on total costs. As a result, the demand for labor would decrease the most in this industry. Industries A and C also have high labor cost percentages, so they would also be affected by the price increase, but not as severely as Industry B. Industry D has a low labor cost percentage, so the price increase would have minimal impact on labor demand.

Suppose There Are Four Industries