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Increase in Wages and its Effect on Firm's Profit

Question

Discuss whether or not an increase in wages will reduce a firm’s profit.

Category:

Firm Behavior and Strategies

Frequently asked question

Preview Answer

I. 🍃Introduction
- Brief explanation of the topic

II. Reasons why higher wages might lead to negative outcomes
- Higher wage bill
- Labour costs per unit increase
- Costs of production increase
- Profit falls
- Prices rise
- Revenue falls if demand is elastic

III. Reasons why higher wages might not lead to negative outcomes
- Prevents strikes
- Motivates workers
- Easier to recruit skilled workers
- Other costs may be falling
- Demand for the firm's products may be increasing
- Higher wages may be paid to a smaller labour force
- Replace workers with machines

IV. 👉Conclusion
- Summary of the points made
- Overall assessment of the impact of higher wages on a firm's profitability

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