Question 1
Firms have an incentive to substitute labor for capital as the
◦ price of capital increases.
◦ price of capital decreases.
◦ price of labor increases.
◦ marginal product of labor decreases.
Question 2
Refer to the information provided in Figure 7.6 below to answer the question(s) that follow.
Refer to Figure 7.6. The shoe manufacturer currently produces 50 units of output. If this shoe manufacturer increases labor from 15 to 20, the marginal product of the 20th worker
◦ is zero, as the total number of shoes produced remains at 50.
◦ is 8.5, as capital can be reduced by 8.5 units when the 20th worker is hired.
◦ cannot be determined because output remains constant.
◦ cannot be determined because both capital and labor have been increased.
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