A Firm Negotiates a New Labor Contract with a Higher

question 31

Multiple Choice

A firm negotiates a new labor contract with a higher average hourly wage. What is the most likely effect of the higher wage on the firm's price and output?

• A) Neither price nor output will be affected.
• B) Price will increase but output will not change.
• C) Both price and output will increase.
• D) Price will not change but output will decrease.
• E) Price will increase and output will decrease.

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Definitions:

Employee Stock Options

A benefit offered by companies to their employees, giving them the right but not the obligation to buy the company's stock at a predetermined price during a specified period.

Intrinsic Value

The inherent, actual value of an asset, independent of its market value.

Underwater

A situation where the market value of an asset is less than the amount owed on it, often used in reference to mortgages.

Expiration Date

The last day on which an option or futures contract is valid or can be exercised.