If a firm hires one worker and eliminates four units of capital, and hires one more worker and replaces three more units of capital, keeping output constant, then
A)workers and capital are perfect substitutes.
B)the firm is operating inefficiently because capital is more efficient than workers.
C)the firm is experiencing a diminishing marginal rate of technical substitution.
D)there are decreasing returns to scale.

Question

Quizplus · Accepted Answer

The firm is experiencing a diminishing marginal rate of technical substitution because it takes fewer units of capital to replace a worker as more workers are hired, indicating that the amount of capital that can be substituted by an additional worker is decreasing.

If a Firm Hires One Worker and Eliminates Four Units