Suppose capital and labor are perfect complements for a particular production process. If the price of labor increases, holding the price of capital and the level of output constant, the firm should:
A)use more capital and less labor.
B)use more labor and less capital.
C)use the same amounts of capital and labor.
D)eliminate all use of labor.

Question

Quizplus · Accepted Answer

When capital and labor are perfect complements, they are used in fixed proportions. Therefore, even if the price of labor increases, the firm cannot substitute labor with capital and must use the same amounts to maintain the level of output.

Suppose Capital and Labor Are Perfect Complements for a Particular