True, False, or Uncertain [6 marks] Explain why each of the following statements

Question

True, False, or Uncertain [6 marks]

Explain why each of the following statements 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.

1. 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 increase MP to 20, the marginal cost of output produced by this levle 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

False . Marginal Cost depends on the wage rate . For each unit of extra labour hired the marginal cost rises by 100$ ( wage rate ) . Since no changes in wage rate has occured so the MC at that level of labour will be same , will not decline . Marginal product rises or marginal revenue will rise due to technological progress but nothing has been mentioned about fall in wage rate .

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