Two inputs,labor and capital,are considered substitutes if:
A)a fall in the price of labor leads to no change in the price of capital
B)the marginal rate of technical substitution of labor for capital is less than one.
C)a fall in the price of labor leads to an increase in the price of capital
D)increasing the quantity of labor decreases the marginal product of capital

Question

Quizplus · Accepted Answer

When two inputs are considered substitutes, increasing the quantity of one input (labor, in this case) decreases the marginal product of the other input (capital). This is because the firm can substitute more of the cheaper input (labor) for the more expensive one (capital), reducing the reliance on and the effectiveness of the latter in production.

Two Inputs,labor and Capital,are Considered Substitutes If