Assume the price of capital doubles and, as a result, firms make no change in th

Question

Assume the price of capital doubles and, as a result, firms make no change in the relative quantities of capital and labor they employ. This implies that:

labor is not readily substitutable for capital.

the law of diminishing returns is not applicable.

the firms are producing an inferior good.

the demand for capital is highly price elastic.

labor is not readily substitutable for capital.

the law of diminishing returns is not applicable.

the firms are producing an inferior good.

the demand for capital is highly price elastic.

Explanation / Answer

Correct Answer:

Labor is not readily substitutable for capital.

Explanation:

In a Condition as mentioned in the answer, firm cannot change the relative quantities of factors of production as mentioned in the question, even if the price of capital doubles.

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