Assume the Price of Capital Doubles And, as a Result

question 240

Multiple Choice

Assume the price of capital doubles and, as a result, firms make no change in the relative quantities of capital and labor they employ. This implies that

• A)labor is not readily substitutable for capital.
• B)the law of diminishing returns is not applicable.
• C)the firms are producing an inferior good.
• D)the demand for capital is highly price elastic.

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