Suppose the Productivity of Labor Increases and at the Same

question 50

Multiple Choice

Suppose the productivity of labor increases and at the same time the price of capital, which is complementary to labor, increases. As a result, the demand for labor

• A) will increase.
• B) will decrease.
• C) may either increase or decrease.
• D) will not change.

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Definitions:

Implicit Costs

The opportunity costs of using resources that a firm already owns, rather than the expenses directly paid out.

Explicit Costs

Direct, out-of-pocket expenses incurred by a firm or individual for business operations or activities.

Accounting Profits

The financial gain calculated by subtracting total explicit costs from total revenues, using generally accepted accounting principles.

Economic Profits

Profits calculated by subtracting both explicit and implicit costs from total revenues; also known as supernormal profits.