Question

QUESTION 1

Which of the following statements is correct?

		To increase its profit, the firm always increases its price.
		Having chosen its profit-maximizing price p*, the firm would then set its nominal wage level.
		The slope of the demand curve is the firm’s marginal rate of substitution.
		The firm first sets its profit-maximizing price p*, then the number of employees.

QUESTION 2

Which of the following statements is correct?

		In equilibrium, the wage clears the labour market, so there is no unemployment.
		If all firms set the same price and pay the same nominal wage, then the higher the real wage that they pay, the lower is their mark-up.
		To maximize profits, firms set the wage at the level where the workers are indifferent between working and not working.
		Firms aim to set as high a price as possible.

Answer 1

Question 1

Option A - incorrect
Because if firm always increase the price , it's become more expensive and buyer explore another options , after sometime increasing price not profitable

Option B - incorrect
Because in any firm , marketing department determines the price of product after HR determines the wage level

Option C - incorrect
Because The firm’s marginal rate of substitution shows how much the price can be lowered for an extra unit of sale while keeping the profit constant. That's why the slope of the isoprofit curve.

So the Answer should be D

Question 2

Answer is B

Because the real wage is    W/P
while the markup is     (P − W)/P = 1 − (W/P). So the higher the former, the lower the latter.