Use the following to answer questions below:

-Refer to the equilibrium graph. The change from point A to point B is the result of _____. It causes the capital-to-labor ratio to _______.
A) an increase in the wage rate of labor; increase
B) an increase in the wage rate of labor; decrease
C) an increase in the rental price of capital; increase
D) an increase in the rental price of capital; decrease

Question

Use the following to answer questions below:
 
-Refer to the equilibrium graph. The change from point A to point B is the result of _____. It causes the capital-to-labor ratio to _______.
A) an increase in the wage rate of labor; increase 
B) an increase in the wage rate of labor; decrease 
C) an increase in the rental price of capital; increase 
D) an increase in the rental price of capital; decrease

Quizplus · Accepted Answer

An increase in the rental price of capital makes capital more expensive relative to labor, leading firms to use less capital and more labor, thus decreasing the capital-to-labor ratio.

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