An increase in productivity will cause which of the following according to the price-setting behavior of firms?
A)a reduction in prices set by firms
B)an increase in the real wage paid by firms
C)a reduction in the markup set by firms
D)all of the above
E) none of the above

Question

Quizplus · Accepted Answer

An increase in productivity allows firms to produce more with the same amount of inputs, which can lead to a reduction in prices as costs per unit decrease. This can also result in an increase in the real wage paid by firms, as the value of what each worker produces goes up. Additionally, firms might reduce their markup (the difference between the cost to produce goods and the selling price) to reflect the lower production costs or to increase their competitiveness, thus all of the options A, B, and C are correct outcomes of increased productivity.

An Increase in Productivity Will Cause Which of the Following