Use the Following to Answer Questions

question 33

Multiple Choice

Use the following to answer questions.
Exhibit: Aggregate Production Function, Labor Market, and LRAS
-(Exhibit: Aggregate Production Function, Labor Market, and LRAS) In the labor market represented in Panel (b) ,
I. the equilibrium real wage equals $40,000.
II. at the equilibrium real wage, 100 million workers are employed.
III. the equilibrium real wage is that which prevails when the economy achieves its natural level of employment.

• A) I only
• B) I and II only
• C) I, II, and III
• D) None of the above; to determine if the labor market is in equilibrium, we need information on the economy's aggregate production function.

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Definitions:

Returns To Scale

The change in output resulting from a proportional change in all inputs in the production process; can be increasing, constant, or decreasing.

Increasing Returns To Scale

See Economies of scale.

Economies Of Scale

Exist when average costs fall as output increases.

Diseconomies Of Scale

Exist when average costs rise with output.