Suppose two goods (x and y) are being produced efficiently and that the production of x is always more labor intensive than the production of y. Production depends only on two factors (capital and labor); these may be smoothly substituted for each other. The total quantities of these inputs are fixed. An increase in the production of x and a decrease in the production of y will:
a. increase the capital-labor ratio in each firm.
b. decrease the capital-labor ratio in each firm.
c. leave the capital-labor ratio for each firm unchanged.
d. increase the capital-labor ratio in y production and decrease the capital-labor ratio in x production.
a
Economics
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