If Technology Dictates That Labor and Capital Must Be Used

question 128

Multiple Choice

If technology dictates that labor and capital must be used in fixed proportions, an increase in the price of capital will cause a firm to use

• A) more labor as a consequence of the substitution effect.
• B) more labor as a consequence of the output effect.
• C) less labor as a consequence of the substitution effect.
• D) less labor as a consequence of the output effect.

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Definitions:

Mowing A Lawn

The act of cutting the grass in a garden or an area of land to ensure it is maintained at a manageable height and appearance.

Range Of Prices

The range of prices refers to the spectrum of price levels at which goods or services are offered in the market, from the lowest to the highest.

Trade

The swapping of goods and services between two or more parties, within a single economy or across multiple economies.

Opportunity Cost

Giving up on possible rewards from various other options by selecting a single alternative.