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Question
Microeconomics
Posted 8 months ago
Capital and labor are complementary in the production of chupacabra figurines. Assume factor markets are perfectly competitive.
Which of the following decreases the demand for labor?
Choose 1 answer:
(A) Worker productivity increases
(B) The cost of capital decreases
(C) An increase in the wage rate for workers in other labor markets
D) A decrease in the wage rate
(E) The demand for chupacabra figurines decreases.
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Answer from Sia
Posted 8 months ago
Solution
a
Complementary Factors: Capital and labor are complementary in the production of chupacabra figurines. This means that an increase in the use of one factor (capital) will increase the productivity of the other factor (labor)
b
Perfect Competition: Assume factor markets are perfectly competitive, meaning that firms are price takers in both the labor and capital markets
c
Decrease in Demand for Labor: The demand for labor will decrease if the demand for chupacabra figurines decreases. This is because the firm will need fewer workers to produce fewer figurines
Answer
(E) The demand for chupacabra figurines decreases
Key Concept
Demand for Labor
Explanation
The demand for labor is derived from the demand for the product that labor helps to produce. If the demand for chupacabra figurines decreases, the firm will need fewer workers, leading to a decrease in the demand for labor.
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