firm uses both labor and machines in production. Explain why an increase in the average wage rate causes both a movement along the demand curve and a shift of the demand curve. An increase in the average wage causes a movement

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Business

Deanna

14 December, 17:42

firm uses both labor and machines in production. Explain why an increase in the average wage rate causes both a movement along the demand curve and a shift of the demand curve. An increase in the average wage causes a movement

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Peter Baxter · Answer 1

The answer is explained below

Explanation:

When a firm increases the average wage rate, the firm would employ fewer workers causing a movement up along the demand curve and a shift to the left of the labor demand curve. As wage increase, the firm production will reduce because of a decrease in number of staffs, the causes the number of machines needed for production to reduce causing the marginal product of labor to shift to the left. The labor demand is further reduced, the firm then employ less labor at a higher wage.