The City of Angles has many firms that make bicycles. The firms hire skilled wor
ID: 1146682 • Letter: T
Question
The City of Angles has many firms that make bicycles. The firms hire skilled workers to build the bikes, and the supply curve of those workers is upward sloping. For each firm, the marginal product of a worker declines as the firm hires more workers. The number of bikes made in the City of Angles does not affect the price of a bike. Suppose that a new machine is invented that increases the number of bikes a worker car build in an hour. of Angles? Question 16 Not yet answered Points out of 1.00 P Flag question What would you expect to happen to wages and employment in the bike industry in the City Select one: a. wages would fall and employment would fall. b. Wages would fall, and employment would rise. Oc. Wages would rise, and employment would fall d. Wages would rise, and employment would riseExplanation / Answer
Correct option is (d).
The bicycle industry is perfectly competitive with diminishing marginal productivity and labor supply curve is upward rising. Invention of the new machine will increase labor productivity which will increase the demand for labor, shifting labor demand curve rightward, and this will increase wage rate and employment.