If Productivity Increases as Wages Increase and Firms Pay a Wage

question 201

Multiple Choice

If productivity increases as wages increase and firms pay a wage above the market clearing wage, then

• A) these firms will go out of business in the long run because they will not be able to compete with firms paying lower wages.
• B) these firms will face an excess demand for labor and will be able to hire the best workers in the market.
• C) these firms will have lower profit levels than their competitors.
• D) a potential benefit these firms may receive is a reduction in employee turnover.

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Definitions:

Activity-Based Costing

Activity-based costing is a method of assigning indirect costs to products and services based on the activities they require.

Predetermined Overhead Rate

A calculated rate used to allocate manufacturing overhead costs to products based on a certain activity base like labor hours or machine hours.

Traditional Costing

A costing method that allocates overhead based on a predetermined rate, often leading to less accuracy in product costing.

Direct Labor-Hours

The total number of working hours spent by employees directly involved in manufacturing goods, critical for computing production costs.