In a Perfectly Competitive Industry, Do Higher Wages for Labor

question 78

Multiple Choice

In a perfectly competitive industry, do higher wages for labor union members diminish profits?

• A)Yes, in the short run, but not in the long run in which some firms exit the industry because of higher costs.
• B)Yes, in the long run, but not in the short run because profits are always fixed in the short run.
• C)No, higher wage costs can affect profits only if they affect labor productivity and this doesn't happen.
• D)No, because higher labor costs usually bring more firms into the industry and this effect dampens price rises.

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