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Suppose a firm's production technology requires that labor and capital are complementary inputs and thus must be used in fixed proportions (e.g., one Boeing jet,
Suppose a firm's production technology requires that labor and capital are complementary inputs and thus must be used in fixed proportions (e.g., one Boeing jet, two pilots in the cockpit). If the price of capital increases, the firm should use:
a.more labor, provided the substitution effect exceeds the output effect.
b.less labor, provided the substitution effect is less than the output effect.
c.more labor because of the output effect.
d.less labor because of the output effect.
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