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: A) labor is not readily substitutable for capital.
- Energy and labor, as well as capital and labor, are complementary, whereas capital and energy are not.
- These findings support the US time series research by Hudson and Jorgenson (1974) and Berndt and Wood (1975), however they are in conflict with the global cross-section analysis by Griftin and Gregory (1976).
- As the capital stock grows, the marginal product of labor also rises.
- Replacing employees with machines in an effort to boost productivity and lower production unit costs. This can result in persistent unemployment.
What is the relationship between capital and labor?
- Labor needs supplies to work with, as well as shelter, tools, machinery, and other productive tools, in order to produce successfully.
These all require capital, which is a collection of prior earnings.
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