Question

The price of cars has decreased over the last 5 years. The supply of auto-workers is PERFECTLY ELASTIC. If everything else except the price of cars stayed the same, what happened to the marginal product of an autoworker?

A

The marginal product of an auto-worker in the US has increased.

B

The marginal product of an auto worker in the US is unchanged.

C

The marginal product of an auto worker in the US has decreased.

D

We need to know the demand for auto-workers to determine the effect on marginal product.

Answer 1

As price and quantity demanded of cars have inverse relationship with each other. Fall in price of car will raise the demand of it which will need more workers to produce.

Supply of workers is perfectly elastic which means that there are unlimited worker available at a specific wage rate. Producers can hire the labor at minimal marginal cost possible where they help producing enough cars to complete the demand which results in rise in marginal product of labor.

Option A is correct.