1) Please help to answer the following multiple-choice question and explain why you select the choice.

2) Can you explain to me about Neoclassical theory of distribution as I am still not very clear about it.

I have limited resources on this concept.

Thank You.

Question:

Use the neoclassical of distribution to predict the impact on the real wage and the real rental price of capital of a wave of immigration increasing the labour force.

Choices:

1)Because of diminishing returns to labour, an increase in the labour force causes the marginal product of labour to fall. Hence, the real wage falls. The increase in the labour force will increase the marginal product of capital and will increase the real rental price of capital.

2)Because of increasing returns to labour an increase in the labour force causes the marginal product of labour to increase. Hence, the real wage rises. The increase in the labour force will incr3ease the marginal product of capital and will increase the real rental price of capital.

3)Because of constant returns to labour, an increase in the labour force leaves the marginal product of labour and marginal product of capital unchanged.

4)Because of diminishing returns to labour, an increase in the labour force reduces both the marginal product of labour and marginal product of capital.

Regards,