Suppose That a Union Increases Wages by 10% but That

question 2

Multiple Choice

Suppose that a union increases wages by 10% but that the impact of this is exactly offset by the union also increasing labor productivity by 10%.Which of the following will occur if the firm can freely set employment levels?

• A) Employment will fall by 10%.
• B) The cost of output will go up 10%.
• C) Demand for output will go up by more than 10% if the price elasticity of demand is greater than one.
• D) The firm will substitute labor for capital.