The market for toothbrushes is perfectly competitive and the labor market for workers for this market is also perfectly competitive. Recently the wage rate for toothbrush workers decreased and the number of toothbrush workers employed increased.

Which of the following is the most likely cause of the change in the wage rate and number of workers employed described?

Choose 1 answer:
(A) worker productivity in the toothbrush market improves
(B) the wage rate in another industry decreased
(C) the price of toothbrushes increases
(D) working conditions for toothbrush workers have worsened.
(E) a large amount of labor exits the toothbrush labor market

Question

The market for toothbrushes is perfectly competitive and the labor market for workers for this market is also perfectly competitive. Recently the wage rate for toothbrush workers decreased and the number of toothbrush workers employed increased.

Which of the following is the most likely cause of the change in the wage rate and number of workers employed described?

Choose 1 answer:
(A) worker productivity in the toothbrush market improves
(B) the wage rate in another industry decreased
(C) the price of toothbrushes increases
(D) working conditions for toothbrush workers have worsened.
(E) a large amount of labor exits the toothbrush labor market

Accepted Answer

∻Solution∻ ‖ a ⋮ Marginal Revenue Product of Labor (MRPL): The MRPL is the additional revenue a firm earns by employing one more unit of labor. In a perfectly competitive labor market, firms will hire workers up to the point where MRPL equals the wage rate. ‖ ‖ b ⋮ Impact of Worker Productivity: If worker productivity improves, each worker generates more revenue for the firm. This increases the MRPL, which can lead to a higher demand for labor even if the wage rate decreases. ‖ ‖ c ⋮ Analysis of Answer Choices: Given the context of a perfectly competitive market for both the product and labor, and the observed decrease in wage rate with an increase in employment: - (A) An improvement in worker productivity would increase MRPL, leading to more employment at a lower wage rate. - (B) A decrease in the wage rate in another industry would not directly affect the toothbrush market's wage rate or employment. - (C) An increase in the price of toothbrushes would increase MRPL, but would typically lead to higher wages, not lower. - (D) Worsened working conditions would likely decrease the supply of labor, leading to higher wages and lower employment. - (E) An exit of labor from the market would decrease the supply of labor, leading to higher wages and lower employment. ‖ ∻Answer∻ ⚹ (A) worker productivity in the toothbrush market improves ⚹ ∻Key Concept∻ ⚹ Worker Productivity and MRPL ⚹ ∻Explanation∻ ⚹ An improvement in worker productivity increases the MRPL, which can lead to an increase in employment even if wages decrease, as firms are willing to hire more workers at a lower wage rate due to the higher productivity. ⚹◊What effect would a decrease in the wage rate for toothbrush workers have on the overall labor market in a perfectly competitive industry?⍭ Generate me a similar question◊

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