📚 Learning Guide
Marginal Revenue Product Analysis
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If a firm experiences an increase in labor productivity due to new technology, it will necessarily increase its marginal revenue product, leading to higher wages for all workers without any changes to labor demand.

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Answer

When a firm adopts new technology that boosts labor productivity, it means that each worker can produce more output in the same amount of time. This increase in productivity raises the marginal revenue product (MRP), which is the additional revenue generated by one more unit of labor. For example, if a factory worker can now produce 10 more widgets a day instead of 5 due to improved machinery, the firm's revenue from each worker increases. However, while the MRP goes up, this doesn't automatically mean that all workers will receive higher wages or that the overall demand for labor will change. Firms may choose to keep wages the same, invest in other areas, or adjust their labor needs based on overall market conditions, so higher productivity doesn’t guarantee wage increases for everyone.

Detailed Explanation

An increase in productivity does not always mean wages will go up for everyone. Other options are incorrect because This answer assumes that higher productivity automatically raises wages for all workers.

Key Concepts

Marginal Revenue Product
Labor Demand
Wages
Topic

Marginal Revenue Product Analysis

Difficulty

medium level question

Cognitive Level

understand

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