A firm purchases less capital equipment. We would expect to observe

Question

Quizplus · Accepted Answer

When a firm purchases less capital equipment, it is likely to reduce their demand for labor as they are not required to operate and maintain as much machinery. Therefore, option C is the correct answer as a decrease in demand for labor means the firm needs fewer workers. It will not result in an increase in the supply of labor as option A suggests because the supply curve of labor is determined by the number of individuals available to work in the market, not the firm's purchasing decisions. Option B's suggestion of a decrease in labor supply does not apply because labor supply is not affected by capital equipment purchases. Option D's suggestion of a wage rate decrease is also not necessarily true because changes in capital equipment purchases do not always result in changes to wage rates.

A Firm Purchases Less Capital Equipment