Improvements in the productivity of labor will tend to:

• A. reduce the marginal cost of production
• B. decrease the demand for capital
• C. raise the equilibrium wage rate in the labor market
• D. increase the output produced with the same amount of labor

Answer: (D)

Verified step by step guidance

1. Understand the concept of labor productivity: it refers to the amount of output produced per unit of labor input. When labor productivity improves, workers can produce more output in the same amount of time.
2. Analyze how increased labor productivity affects marginal cost: since more output is produced with the same labor input, the cost of producing an additional unit (marginal cost) tends to decrease because labor is a key input cost.
3. Consider the impact on the demand for capital: with higher labor productivity, firms might need less capital to produce the same output, potentially decreasing the demand for capital, but this depends on the substitutability between labor and capital.
4. Examine the effect on the equilibrium wage rate: improved productivity can increase the value of labor to firms, which may lead to higher wages as firms compete for more productive workers.
5. Summarize the overall effect: improvements in labor productivity primarily increase the output produced with the same amount of labor, which is the direct and most fundamental consequence.