According to the output effect of a factor price change, if supply of labor increases, then once the firm fully adjusts to the labor supply change it
A) increases output and thus demand for all inputs increases.
B) decreases output and thus demand for all inputs decreases.
C) increases demand for labor alone and there is no change in its output level.
D) increases output and decreases demand for labor.

Question

Quizplus · Accepted Answer

When the supply of labor increases, the cost of labor decreases, leading firms to increase output to take advantage of the cheaper labor, which in turn increases the demand for all inputs.

According to the Output Effect of a Factor Price Change