Each firm's capital stock is fixed in the short run.Therefore, if the price of capital increases, then in the short run the market demand curve for labor in a perfectly competitive market will
A)shift inward.
B)be unaffected.
C)shift outward.
D)change slope.

Question

Quizplus · Accepted Answer

If the price of capital increases, it means firms are less likely to use capital and more likely to use labor, which will increase the demand for labor. However, in the short run, the capital stock is fixed, meaning that the firms cannot adjust their capital usage to compensate for the increase in wage rate. Therefore, the demand for labor will remain the same, and the market demand curve for labor will be unaffected.

Each Firm's Capital Stock Is Fixed in the Short Run