Suppose the price of labor decreases. In the long run, the amount of capital a firm...
Suppose the price of labor decreases. In the long run, the amount of capital a firm uses
A: Will increase
B: Will decrease
C: May increases or decrease
D: Will remain unchanged
Homework Answers
Will increase
Reason: Since labor and capital are complements in the production process, as price of labor falls, usage of labor will increase. In the long run, usage of capital to go with increased labor would also have to be increased in order to increase output.
Thus, a firm will use more capital.
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