Two resource inputs, capital and labor, are complementary and used in fixed proportions. An increase in the price of capital will
A)increase the demand for labor.
B)decrease the demand for labor.
C)decrease the quantity demanded for labor.
D)have no effect, because the relationship is fixed.

Question

Quizplus · Accepted Answer

When capital and labor are used in fixed proportions and are complementary, an increase in the price of capital makes production more expensive, leading to a decrease in production. This, in turn, decreases the demand for labor since less labor is needed for the reduced level of production.

Two Resource Inputs, Capital and Labor, Are Complementary and Used