Suppose labor and capital are the only factors of production.Capital is fixed and has a perfectly inelastic supply,so all income earned by capital is rent.A Japanese-owned factory is built in the U.S.and employs only American workers.Let D_US represent the demand for labor in American factories and D_J represent the demand for labor in the new Japanese factory.The effect of the new factory on the American labor market is shown in the accompanying diagram.

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The Answer of Suppose labor and capital are the only factors of production.Capital is fixed and has a perfectly inelastic supply,so all income earned by capital is rent.A Japanese-owned factory is built in the U.S.and employs only American workers.Let D_US represent the demand for labor in American factories and D_J represent the demand for labor in the new Japanese factory.The effect of the new factory on the American labor market is shown in the accompanying diagram.

Suppose Labor and Capital Are the Only Factors of Production