Suppose Jodi's widget business is using two inputs,labour and capital.If the price of labour increases,which of the following will happen?
A)Jodi will shut down her business.
B)The firm's average total cost curve will shift upward.
C)The firm's marginal cost curve will remain unchanged.
D)Jodi will hire more labour.
E)The firm's average fixed cost curve will shift upward.

Question

Quizplus · Accepted Answer

If the price of labour increases, the firm's variable cost will increase, resulting in an upward shift of the average total cost curve. The marginal cost curve will also shift upward as the cost of the last unit of labour increases. Hiring more labour is not guaranteed since the increased cost may encourage Jodi to consider other options, such as substituting labour for capital or finding new suppliers, meaning option D is incorrect. Options A and E are unrelated to the price of labour and are therefore incorrect.

Suppose Jodi's Widget Business Is Using Two Inputs,labour and Capital