Refer to the following:

-If the firm continues to produce 45 units of output and moves from the combination at A to the combination at B, it must be true that
A) the price of labor decreased relative to the price of capital.
B) the price of capital decreased relative to the price of labor.
C) the cost of producing 45 units decreased.
D) both b and c
E) none of these are true

Question

Refer to the following:
 
-If the firm continues to produce 45 units of output and moves from the combination at A to the combination at B, it must be true that
A) the price of labor decreased relative to the price of capital. 
B) the price of capital decreased relative to the price of labor. 
C) the cost of producing 45 units decreased. 
D) both b and c 
E) none of these are true

Quizplus · Accepted Answer

If the firm moves from combination A to B while producing the same output, it implies that the firm is substituting labor for capital. This substitution suggests that the price of labor has decreased relative to the price of capital, making labor more attractive.

Refer to the Following