If the wage rate increases and firms in a perfectly competitive industry are hiring labor, then

Question

Quizplus · Accepted Answer

If the wage rate increases, the firms' cost of production increases, causing a decrease in their profits. In response to this, firms may decrease their demand for labor, which would lead to a decrease in the market supply of labor. This would lead to an increase in the market wage rate, and a decrease in employment. Thus, the correct answer is C - market supply will decrease.

If the Wage Rate Increases and Firms in a Perfectly