If an Increase in the Cost of Labor Causes the Firm

question 41

Multiple Choice

If an increase in the cost of labor causes the firm to use less capital,then

• A) the scale effect has dominated over the substitution effect.
• B) the substitution effect has dominated over the scale effect.
• C) the firm has moved along an isoquant curve.
• D) the firm has moved onto a higher isoquant.

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Definitions:

Income Levels

The range of earnings of individuals or groups, reflecting economic status, which can influence buying power and standard of living.

Trade Restrictions

Measures such as tariffs, quotas, and embargoes that governments use to control the amount of trade across their borders.

Free Trade

Free trade is a policy of minimal restrictions on the international exchange of goods and services, allowing goods to move freely across borders.

Partially Valid

Refers to something being correct or effective only to a certain extent or in specific circumstances.