During recessions, American firms lay off a larger proportion of their workers t

Question

During recessions, American firms lay off a larger proportion of their workers than Japanese firms do. (t has been claimed that Japanese firms continue to produce at high levels and store the output or sell it at relatively low prices during the recession.) Would you expect the average product of labor to be higher in Japan or the United States? Why? Assume that the production function remains unchanged over a period that is long enough to include many recessions and expansions, that Japanese and American firms have identical production functions, and that Japan and the U.S. produce using the same ratio of factors during good times O A. With diminishing marginal returns, the average product of labor is higher in the U.S. because the marginal product of labor rises when workers are laid off. O B. With constant returns to scale, the average product of labor is equal in the U.S. and Japan because the marginal product of labor does not change when workers are laid off. O C. With diminishing marginal returns, the average product of labor is lower in the US. because the marginal product of labor decreases when workers are laid off O D. With decreasing retuns to scale, the average product of labor is higher in the U.S. because the marginal product of labor rises when workers are laid off O E. With diminishing marginal returns, the average product of labor is higher in Japan because the marginal product of labor rises when workers are laid off.

Explanation / Answer

Average product of labour will be higher in Japan.Average product is the ratio of total product of labour/quantity of labour.

Total product is higher in japan compared to US there,average product will be higher in Japan.

Marginal product is the ratio of change in total product to change in quantity of labour.Since more workers are laid off in US,the total product falls by a substantial amount.So,the change in total product and the change in Labour is higher(falls higher) in US and therefore,marginal product falls.

Answer-c.

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