Chapter 72, Problem 2MCQ

To determine

How labor and capital will consider if an increase in capital employed by a firm leads to an increase in the marginal product of labor?

Answer to Problem 2MCQ

From the available options, the correct option is complemented.

Explanation of Solution

The labor and capital would consider as complements to each other in the case when an increase in capital leads to an increase in the marginal product of labor because it shows the firm will not use a single factor of production from labor and capital as they both are needed together for the production. Both factors depend on each other, the change in one factor of production affects the product of another factor. Whereas, substitute products cannot be used together as they will increase the cost of the company. And, capital can be physical or working. Also, capital cannot exist if there is no existing labor.

Therefore, the correct option is b (complements).

Economics Concept Introduction

Introduction: Labor and capital are the factors of production that a firm used to produce a product in the market.

Marginal product is the extra benefit or output that a firm can earn by adding one additional unit of the input to the existing productive factors such as labor.