Question

When an input represents a larger proportion of a firm's total costs, then O A. demand for the input will tends to be less elastic. O B. demand for the input will tends to be more elastic. O C. the input demand will not vary significantly with a change in input price. O D. the usage of the input cannot be varied in the production function.

Answer 1

1. A. Demand for the input tends to be less elastic. It is so because the less change in the price of input will result is more demand for input which makes it dearer. There has a larger share of total cost.

2. D. Hire less labourers. In short-run under perfect competition, the MR=AR=MC and therefore all works proportionately. The price of labour if increases, the Marginal product of labour decreases and there less output. Less output means less revenue. This will decrease the demand for labour. Also, the law of demand operates.

3.B. An increase in the price of the final products of substitute's goods. When the price of substitute increases, the demand for the final good will increase thus more revenue which will boost short-run labour demand.

4. B. Taxes on labor affect the labor supply curve. The other three factors will affect the labor supply except for B. Job flexibility will change the supply curve in different industries. Changes in working conditions like timing, rules, etc will affect the labor supply. Change in the wage rate will directly change the labor supply. There is a direct relationship between the wage rate and the supply of labor.

5. A. Fringe benefits offered to the employees. This will affect the employees and not the employers whereas the other factors mentioned in the options will affect the total cost of the producers according to which they will demand labor.

6. D. support from organized labor. As labors become more productive and efficient, they become organized. The company in order to decrease its cost sometimes and to increase the quality of outsourcing their work. Thus support from organized labor boost the practice of outsourcing.

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