Firms have an incentive to substitute labor for capital as the
A) price of capital increases.
B) price of capital decreases.
C) price of labor increases.
D) marginal product of labor decreases.

Question

Quizplus · Accepted Answer

As the price of capital increases, firms may find it more cost-effective to use more labor instead of capital, thus substituting labor for capital.

Firms Have an Incentive to Substitute Labor for Capital as the