Suppose in a particular production process that capital and labor are perfect substitutes so that three units of labor are equivalent to one unit of capital. If the price of capital is $4 per unit and the price of labor is $1 per unit, the firm should:
A)employ capital only.
B)employ labor only.
C)use three times as much capital as labor.
D)use three times as much labor as capital.

Question

Quizplus · Accepted Answer

Since three units of labor ($3) are equivalent to one unit of capital ($4) and labor is cheaper, the firm should employ labor only to minimize costs.

Suppose in a Particular Production Process That Capital and Labor