In Firm X,labor Costs Are 85 Percent of Production Costs,while

Multiple Choice

In firm X,labor costs are 85 percent of production costs,while in firm Y labor costs are 40 percent of production costs.A 20 percent increase in wages would increase production costs by:

A) 23 percent in firm X and 20 percent in firm Y.
B) 19 percent in firm X and 15 percent in firm Y.
C) 15 percent in firm X and 6 percent in firm Y.
D) 17 percent in firm X and 8 percent in firm Y.
In firm X,production costs would increase by 0.85 * 0.2= 0.17 (i.e. ,17 percent) ,whereas in firm Y production costs would increase by 0.4 * 0.2 = 0.08 (i.e. ,8 percent) .