Homework Answers
Option B.
- Given that the capital and labour are the perfect substitutes of each other so that if the price of anyone goes Higher then the other one can be employed by the firm.
- It is also given that the employing three units of labour is equivalent to employing one unit of capital. So we can easily substitute three units of labour with one unit of capital or vive versa.
- But the price of the capital is $4 per unit while the price of the labour is just $1 per unit.
- Hence the firm should only employ labour as a substitute of capital.
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