Question

suppose increased immigration raises the size of the labor force. the neoclassical theory of distribution predicts that: the real wage will rise, and the real rental price of capital will fall. both the real wage and the real rental price of capital will fall. both the real wage and the real rental price of capital will rise. the real wage will fall, and the real rental price of capital will rise.

Explanation:

In neoclassical theory of distribution, real wage is related to marginal product of labor and real rental price of capital to marginal product of capital. When labor - force size increases due to immigration, the marginal product of labor falls (law of diminishing marginal product), so real wage falls. With more labor available, each unit of capital becomes more productive (more labor to work with capital), so the marginal product of capital rises and thus the real rental price of capital rises.

Answer:

D. the real wage will fall, and the real rental price of capital will rise.