QUESTION 1 If the marginal product of labor is greater than the average product
ID: 1151251 • Letter: Q
Question
QUESTION 1
If the marginal product of labor is greater than the average product of labor, then the
average product must be decreasing.
marginal product must be decreasing.
average product must be increasing.
marginal product must be increasing.
1 points
QUESTION 2
If the income effect of a wage change outweighs the substitution effect of a wage change, the labor-supply curve is
horizontal.
vertical.
backward bending.
upward sloping.
A.average product must be decreasing.
B.marginal product must be decreasing.
C.average product must be increasing.
D.marginal product must be increasing.
Explanation / Answer
1. C. average product must be increasing.
The marginal product is the addition made to the total product and the average product is the average of the total product.
The relationship between the marginal and the average product is, when the marginal product is less than the average product the average product must be decreasing. On the other hand when the marginal product is greater than the average product, the average product must be rising. And when the marginal product is equal to the average product, the average product does not change.
2. C. backward bending.
When the income effect of wage increase dominates the subsitution effect the labour supply will be a backward bending one. When the wages increases the workers can earn target income by working fewer hours so there will be less labour supply.
When the substitution effect dominates over the income effect the labour supply curve will be a upward sloping one. When the substitution effect is in effect the labour supply will increase because now the work has now become more attractive.
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