Suppose Capital and Labor Are Used in Fixed Proportions So

question 229

Multiple Choice

Suppose capital and labor are used in fixed proportions so that each machine requires only one worker. If a decline in the price of capital occurs, then the demand for labor will

• A) decrease solely because of the substitution effect.
• B) increase solely because of the substitution effect.
• C) increase solely because of the output effect.
• D) decrease solely because of the output effect.

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Beginning of Year

The start of a calendar or fiscal year, commonly used as a reference point for financial and accounting purposes.

Direct Material

Raw materials that are directly traceable to the production of a specific good or service.

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Refers to items or services that have been bought by a company from outside suppliers.

Raw Materials Inventory

Stocks of the basic raw materials that are input into a manufacturing process and are waiting to be processed or used.