Suppose Capital and Labor Are Perfect Substitutes in a Long-Run

question 12

Multiple Choice

Suppose capital and labor are perfect substitutes in a long-run production process. If labor costs $15 per hour and the rental rate of capital is $20 per hour, what can we say about the profit maximizing choice of labor and capital inputs?

• A) We will only use labor in the production process.
• B) We will only use capital in the production process.
• C) We will use equal amounts of capital and labor.
• D) The optimal capital-labor ratio is 0.75-to-1.

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