Assume that firms in an industry observe a 10% increase in the productivity of labor, but to get there they had to increase the cost of labor by 5%. What should be expected to happen in the output market as a result of this development?

The supply should increase

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The supply should decrease

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The supply should remain unchanged

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The demand should increase

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Solution

The correct option is A
The supply should increase

The 10% increase in productivity of labour will offset the increase in cost by 5%, leading to increase in supply at the exisiting production capacity.

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Assume that firms in an industry observe a 10% increase in the productivity of labor, but to get there they had to increase the cost of labor by 5%. What should be expected to happen in the output market as a result of this development?

The correct option is A The supply should increase The 10% increase in productivity of labour will offset the increase in cost by 5%, leading to increase in supply at the exisiting production capacity.

The correct option is A
The supply should increase

The 10% increase in productivity of labour will offset the increase in cost by 5%, leading to increase in supply at the exisiting production capacity.