If Only One Firm in an Industry Could Take Advantage

question 97

Multiple Choice

If only one firm in an industry could take advantage of a reduced wage and all other firms continue paying the old wage, how would one best describe the one firm's reaction to this reduced wage assuming labor is the only variable input? The marginal revenue product of labor curve:

• A) would remain unchanged, and the firm would hire more labor at the lower wage.
• B) shifts to the left, and the firm hires more labor at the lower wage on the new curve.
• C) shifts to the right, and the firm hires more labor at the lower wage on the new curve.
• D) shifts to the left, and the firm hires less labor at the lower wage on the new curve.
• E) shifts to the right, and the firm hires less labor at the lower wage on the new curve.

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Definitions:

Nash Equilibrium

A situation in a strategic game where each player has chosen a strategy and no player can benefit by changing strategies while the other players keep theirs unchanged.

Mixed Strategy

A game theory strategy where a player chooses between all possible actions at specified probabilities.

Expected Payoff

Expected payoff is the anticipated value of an investment or decision under uncertainty, calculated as the weighted average of its possible outcomes.

Nash Equilibrium

A concept in game theory where each player's strategy is optimal, considering the strategies of other players, and no player has anything to gain by changing only their own strategy.