A3-5. Suppose a firm faces a wage of 100/unit of labour and at its current hirin

Question

A3-5. Suppose a firm faces a wage of 100/unit of labour and at its current hiring level, marginal product (MP) is equal to 10. If a technological advance increases MP to 20, the marginal cost of output produced by this level of labour will decline from 10 to 5. [Hint: MC across multiple units of output is the charige in total costs divided by the change in output A3-6. Suppose a firm is currently operating where it would experience long-run diseconomies of scale if it increased output. This firm will have average costs that increase by less in the short-run than it would in the long-run

Explanation / Answer

A3-5 True, because increase in technological advancement increase productivity per unit of labor. Thus this will reduce the labor requirement for any given level of output. This will lead to decrease in variable cost and in the MC.

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