Assume the prices of labor and capital remain the same, but the average educational level of workers decreases and therefore labor productivity decreases. This would lead a firm to
A) use a more capital-intensive production technology.
B) use a more labor-intensive technology.
C) not change its production technology, but produce fewer units of output.
D) use only capital to produce the product.

Question

Quizplus · Accepted Answer

A decrease in labor productivity makes labor relatively less efficient compared to capital, prompting firms to adopt more capital-intensive production technologies to maintain or enhance productivity.

Assume the Prices of Labor and Capital Remain the Same