Adjustment costs include a variety of expenses a firm faces when changing its level of employment, such as costs for hiring, training, or laying off workers. These costs can lead to less employment volatility because firms may be more cautious in changing employment levels to avoid these costs. Additionally, firms aim to minimize these costs, which influences their decision on the optimal level of employment.

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Adjustment Costs

Question 25

Multiple Choice

Adjustment costs:

A) are costs incurred by a firm when it has to advertise to hire more workers.
B) are costs incurred by a firm when it decides it needs to layoff workers.
C) result in less employment volatility.
D) result in a firm optimally choosing to reach the cost minimizing level of employment.
E) All of the above are true statements about adjustment costs.

Correct Answer: