Given that labor is on the vertical axis,_____ represents the output effect of an increase in the wage rate.
A)an upward movement along an isoquant
B)a downward movement along an isoquant
C)a downward movement along an expansion path
D)an upward shift of the expansion path

Question

Quizplus · Accepted Answer

An increase in the wage rate makes labor more expensive relative to capital, leading firms to substitute labor with capital. This substitution effect is represented by a downward movement along the expansion path, as firms adjust their input mix to maintain production at a lower cost.

Given That Labor Is on the Vertical Axis,_____ Represents the Output