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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Definitions:

Tangible Capital Assets

Physical assets owned by a firm that are used in its operations and likely to provide future economic benefits, including buildings, machinery, and equipment.

Government's Ability

The capacity of a government to implement policies, provide public services, and enforce laws effectively.

Future Services

An obligation or arrangement to provide services at a later date, often related to prepaid contracts or deferred revenue.

PSA Handbook

Stands for the Public Sector Accounting Handbook, which contains the accounting standards and guidelines for public sector entities in Canada.