Firms that face higher costs of reducing risks will have _______ isoprofit curves when compared to...

Firms that face higher costs of reducing risks will have _______ isoprofit curves when compared to firms that can reduce risk at a lower cost.

	A.	flatter
	B.	thinner
	C.	thicker
	D.	steeper

Producer surplus from hiring labor will increase when:

	A.	the MP of labor declines.
	B.	the price of the product declines.
	C.	the wage rate declines
	D.	market labor supply falls.

Producer surplus from hiring labor will increase when:

	A.	the MP of labor declines.
	B.	the price of the product declines.
	C.	the wage rate declines
	D.	market labor supply falls.

An increase in the wage rate generates a scale effect that causes the quantity of labor demanded to:

	A.	change in an unpredictable manner.
	B.	remain unchanged.
	C.	rise.
	D.	fall.

Expert Solution

1. When risk is higher, a larger increase in wage is necessary to induce workers to accept additional risk. When a firm faces a higher cost of reducing risk, its isoprofit curve will be steeper. In case of a firm which faces lower cost for reducing risk, its isoprofit curve will be flatter.

Answer: D. Steeper.

2. In a labour market the employers are the consumers and the employees are the sellers of labour power. The employer’s surplus is the difference between the wage rate they are willing to pay and the wage rate that they actually paid. At a higher wage the employer’s surplus is low and at a lower wage their surplus is high. Thus the producer’s (employer) increase when the wage rate decreases.

Answer: C. the wage rate declines.

3. A scale effect results in more output when more labour is employed. But when wage increase, the average and marginal cost also increase which leads to an increase in equilibrium price. This increase in price reduces the demand for the product. Then less input including labour is demanded.

Answer: D. fall.

Rahul Sunny answered 2 years ago

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