The greater the degree of substitutability between capital and labor, the greater will be the downward shift in the cost curve when wage falls.

Question

Quizplus · Accepted Answer

This statement is true. When there is a higher degree of substitutability between capital and labor, firms can easily adjust their production process to use more capital instead of labor when the wage rate falls. This results in a greater reduction in the cost of production and a downward shift in the cost curve.

The Greater the Degree of Substitutability Between Capital and Labor