Labor and capital are substitutes in production. If labor becomes more educated, then, ceteris paribus,
A) capital is substituted for labor.
B) labor is substituted for capital.
C) output decreases as does the rental rate.
D) output increases as does the price of the output.

Question

Quizplus · Accepted Answer

If labor becomes more educated, it becomes more productive and efficient, which makes it a more attractive input relative to capital. As a result, labor is substituted for capital, increasing its demand and potentially lowering its cost.

Labor and Capital Are Substitutes in Production