Improvements in the productivity of labor will tend to:

• A. reduce the demand for all other factors of production
• B. increase the output produced with the same amount of labor
• C. cause the price of labor to fall in all markets
• D. decrease the marginal cost of capital

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of labor productivity. Labor productivity refers to the amount of output produced per unit of labor input. When labor productivity improves, each worker can produce more output in the same amount of time.
2. Step 2: Analyze how an increase in labor productivity affects output. Since each unit of labor produces more, the total output with the same amount of labor increases. This is a direct relationship between productivity and output.
3. Step 3: Consider the impact on the demand for other factors of production. Higher labor productivity can either complement or substitute other inputs. However, it does not necessarily reduce the demand for all other factors; the effect depends on the production technology and substitution possibilities.
4. Step 4: Examine the effect on the price of labor. Improved productivity can increase the marginal product of labor, which may lead to higher wages rather than a fall in the price of labor, assuming labor markets are competitive.
5. Step 5: Evaluate the impact on marginal cost of capital. While improved labor productivity can reduce overall production costs, it does not directly imply a decrease in the marginal cost of capital, as capital costs depend on other factors such as interest rates and capital efficiency.