If the cross-price demand curve for capital (relative to the wage) is vertical, the short run response by a firm to an increase in the wage is the same as its long run response.

Question

Quizplus · Accepted Answer

A vertical cross-price demand curve for capital means that the quantity demanded of capital does not change in response to a change in the wage. This implies that the firm's input mix (i.e. the ratio of capital to labor) remains the same in the short and long run, and thus its response to an increase in the wage is the same in both time periods.

If the Cross-Price Demand Curve for Capital (Relative to the Wage)