Assume a firm uses two inputs, capital and labor. All else constant, an increase in the price of labor would create an incentive for the firm to:
A) substitute labor for capital in its production function.
B) substitute capital for labor in its production function.
C) hire more capital and labor.
D) hire less capital while holding the amount of labor employed constant.
B
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The theory of efficiency wages explains why
a. setting wages at the equilibrium level may increase unemployment. b. it may be in the best interest of firms to offer wages that are above the equilibrium level. c. the most efficient way to pay workers is to pay them according to their skills. d. it is efficient for firms to set wages at the equilibrium level.
Figure 5-12
In Figure 5-12, the move in the consumer equilibrium from A to B shows that
A. beer is an inferior good, but wine is a normal good. B. wine is an inferior good, but beer is a normal good. C. both beer and wine are normal goods. D. both beer and wine are inferior goods.