Suppose in a Particular Production Process That Capital and Labor

question 3

Multiple Choice

Suppose in a particular production process that capital and labor are perfect substitutes so that three units of labor are equivalent to one unit of capital. If the price of capital is $4 per unit and the price of labor is $1 per unit, the firm should:

• A)employ capital only.
• B)employ labor only.
• C)use three times as much capital as labor.
• D)use three times as much labor as capital.

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