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Suppose Capital and Labor Are Used in Fixed Proportions So

Question 229

Multiple Choice

Suppose capital and labor are used in fixed proportions so that each machine requires only one worker. If a decline in the price of capital occurs, then the demand for labor will


A) decrease solely because of the substitution effect.
B) increase solely because of the substitution effect.
C) increase solely because of the output effect.
D) decrease solely because of the output effect.

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