Scenario: Red Country and Purple Country Have Identical Aggregate Production

question 177

Multiple Choice

Scenario: Red Country and Purple Country have identical aggregate production functions. The amount of physical capital stock available to each country is equal. Labor supply in Red Country is HR, while the labor supply in Purple Country is HP.

-Refer to the scenario above.Suppose Red Country experiences a flux of immigration that significantly increases its workforce.What will happen if the country's physical capital stock remains unchanged?

• A) Total efficiency units of labor in Red Country will decrease.
• B) Red Country's income per worker will increase.
• C) The marginal contribution of labor to Red Country's output will fall.
• D) Total output will decrease.

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Definitions:

Cost Per Unit

The total cost to produce a single unit of product, including fixed and variable costs.

Fixed Costs

Costs that do not change with the level of output or production, such as rent, salaries, and insurance premiums.

Level Of Activity

A measure of the volume of production or operations within a business, used to allocate costs or plan for capacities.

Direct Labor Cost

The total expense incurred by a company for the wages of individuals directly involved in the production of goods or services.