Suppose Capital and Labor Are Used in Fixed Proportions So

question 219

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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Definitions:

Net Profits

The amount of money that remains from revenues after all operating expenses, interest, taxes, and preferred stock dividends have been deducted; a key indicator of a company's financial health.

Bonus Pay

Additional compensation given to employees beyond their regular salary, typically as a reward for achieving certain goals or exceptional performance.

Lump-sum Payments

One-time payments made for the entire amount of an obligation or transaction, as opposed to installments.

Base Wage

The initial rate of pay that an employee receives, excluding additional compensation such as bonuses, overtime, or allowances.