How Does a Profit-Maximizing Firm That Is Operating in a Competitive

question 25

Multiple Choice

How does a profit-maximizing firm that is operating in a competitive labor market respond to an increase in the wage rate?

• A) The firm will demand less capital due to the substitution effect.
• B) The firm will demand more labor due to the substitution effect.
• C) The firm will produce less output due to the scale effect.
• D) The firm will demand more capital due to the scale effect.
• E) The firm will demand more labor due to the scale effect.

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Definitions:

Product Defect

A flaw or fault in a product that could make it dangerous or fail to perform its intended purpose.

Ordinary Consumer

An average or typical user of goods or services, used as a standard in legal settings for consumer protection.

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A form of evidence provided by an individual with specialized knowledge or expertise relevant to a particular case or issue.

Product Liability Suits

Legal claims brought against manufacturers, distributors, suppliers, or retailers for damages that consumers suffer because of defects in goods.