What Happens When Technological Advance Makes Available a New Highly

question 154

Multiple Choice

What happens when technological advance makes available a new highly productive capital good for which MP/P is greater than that of labor for which it is a substitute resource?

• A) Labor will replace the new capital because labor is now cheaper.
• B) The new capital will replace labor because it reduces the firms' costs.
• C) More of both the new capital and labor will be used because firms are more productive.
• D) Less of both the new capital and labor will be used because the firms do not know how to use the new technology.

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Definitions:

Production

Production is the process of combining various material inputs and immaterial inputs (plans, know-how) in order to make something for consumption (the output).

Profitable

An economic condition where revenue exceeds the costs and expenses incurred in producing goods or services.

Supply Curve

A graphical representation showing the relationship between the price of a good and the quantity of the good that producers are willing to supply.

Raw Material Costs

The expenses associated with acquiring the unprocessed materials required for the production of goods or services.