If the price of capital increases in an industry and the scale effect dominates,
A) wages and employment levels will both increase.
B) wages and employment levels will both decrease.
C) wages will increase and employment levels will decrease.
D) wages will decrease and employment levels will increase.

Question

Quizplus · Accepted Answer

When the price of capital increases and the scale effect dominates, firms will reduce production, leading to a decrease in both wages and employment levels as the demand for labor decreases.

If the Price of Capital Increases in an Industry and the Scale