Canada has a much lower population density than does Japan. Therefore, the price of land (relative to the price of labour) is lower in Canada than in Japan. Consider a Canadian firm and a Japanese firm, both producing rice, both having access to the same technologies, and both striving to minimize their costs. The Canadian firm will use the two inputs, land and labour, in such a way that its land/labour ratio is
A) equal to one.
B) lower than that of the Japanese firm.
C) equal to that of the Japanese firm.
D) indeterminate as there is insufficient information to know.
E) higher than that of the Japanese firm.

Question

Quizplus · Accepted Answer

Because land is relatively cheaper in Canada than in Japan, Canadian firms will tend to use more land and less labour in production than Japanese firms. This will result in a higher land/labour ratio for the Canadian firm compared to the Japanese firm. Therefore, the answer is E) higher than that of the Japanese firm.

Canada Has a Much Lower Population Density Than Does Japan