Suppose there are four industries. Labor costs are 70 percent of total costs in industry A, 80 percent in B, 45 percent in C, and 10 percent in D. In which of these industries will a 10 percent increase in the price of labor reduce quantity demanded of labor by the largest proportion? A. AB. BC. CD. D

Question

Chace Maxwell

Business

21 June, 14:06

Suppose there are four industries. Labor costs are 70 percent of total costs in industry A, 80 percent in B, 45 percent in C, and 10 percent in D. In which of these industries will a 10 percent increase in the price of labor reduce quantity demanded of labor by the largest proportion? A. AB. BC. CD. D

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Trace · Answer 1

D

Explanation:

The answer is D; this is the case because Industry D is the least labour intensive of the four industries. The implication is that its production process is capital intensive (most of it processes are automated) and it could afford to reduce its quantity demanded of labour if labour cost rises without its impact on the quality and quantity of its output.