Assume that labor and capital are complements in production and that the wage declines. Which of the following statements best describes the adjustment in the use of labor? A) Adjustments in labor use are not influenced by adjustments in capital use. B) The MRP_L curve shifts downward in this case. C) More labor is used both because of the reduced wage and increased use of capital. D) Changes in labor use are indeterminate because the reduced wage and reduced use of capital have opposite influences on the use of labor.

Question

Quizplus · Accepted Answer

Since labor and capital are complements, the reduced wage leads to increased use of labor and increased use of capital, as the two are used together in production. Therefore, more labor is used due to the reduced wage and increased use of capital.

Assume That Labor and Capital Are Complements in Production and That