Explain why the following statement is True, False, or Uncertain according to ec

Question

Explain why the following statement is True, False, or Uncertain according to economic principles. Use diagrams where appropriate. Unsupported answers will receive no marks. It is the explanation that is important.

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 change in total costs divided by the change in output]

Explanation / Answer

The statement is correct

The firm is being a wage of $100 per unit of labour. The marginal product of labour is 10. It means each additional unit will cost $10 to the firm. When marginal product increases to e 20, and the wage rate is still $100 it implies that the additional unit would cost $5 to the firm. (100/20).

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