Suppose That Land and Labor Are Substitute Resources

question 40

Multiple Choice

Suppose that land and labor are substitute resources.If the wage rate rose,the employment of land would rise only if

• A)the output effect outweighed the substitution effect.
• B)the substitution effect outweighed the output effect.
• C)the substitution effect was equal to the output effect.

---

Definitions:

Modigliani And Miller Model

A financial theory proposing that the market value of a company is determined by its earning power and the risk of its underlying assets, and is independent of its capital structure.

Capital Structure

The mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity used to finance its overall operations and growth.

Stock Price

The cost of purchasing a share of a company's stock. The price at which a stock is traded on the market, representing the value investors assign to a company.

MM Model

The Modigliani-Miller theorem, proposing that in a perfect market, the value of a firm is unaffected by how it is financed, whether through debt or equity.