Refer to the Information Provided in Figure 10

question 121

Multiple Choice

Refer to the information provided in Figure 10.3 below to answer the question(s) that follow. Figure 10.3
-Refer to Figure 10.3. The market wage is initially W₀ and the firm is initially at Point A. Labor supply decreases from S₀ to S₁. The firm's MRP_L curve will shift from MRP_L at K₁ to MRP_L at K₂ because

• A) the factor substitution effect will cause the firm to substitute capital for the higher-priced labor.
• B) the supply of labor decreased, and therefore the productivity of labor decreased.
• C) the output effect led to a decrease in the demand for capital, which in turn decreased the productivity of labor.
• D) the firm is no longer maximizing profits.

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