Question

For simplicity, assume that the supply of labor is not affected by real wages and is therefore a vertical line. An increase in capital shifts the production function because V output can be produced from the same amount of labor. V their demand for labor because the marginal benefit from employing labor will In addition, firms . This will real wages in the economy.

dropdowns

1st - downward or upward

2nd - more or less

3rd - increase or decrease

4th - fall or rise

5th - bid up or not affect or reduce

Answer 1

I simplicity, assume for that the supply of labor not affected by the real wages and is therefore a vertical line. An in hease in capital shifts the production for ction upward because more on can be produced from the same anont of labor. output are . On addition fames increase their demand for labor because the marginal benefit from employing labor will not affect deline . This will bid of real wages in the economy As, capital stock in hears, production fraction shifts upward from, y, to Y2. g Now, as a result out put increases from, yine to y₂* en panel B, labor demand (aucis duired, due to upwand skibt of production function, demand for labor increases from Li to Lz. because Marginal benefit of employing labor will decline or marginal revenue product of labor, or MRPL declins as labor of to employment in creascs. Hunce as a result at a give real wage rate (W ) firms will employ mor labor and output increases. cs Scanned with CamScanner

A output ** - Y₂ (k; 2) Y, (XL) Laborld) Real a ware L2 culp - LI L2 Labor (4) cs Scanned with CamScanner