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Economics · May / June 2020 · Paper 11 · Question 8

2281Firms and production

The wage of labour in a firm increases. What is the most likely effect on the production process?

  1. ACapital replaces labour immediately.
  2. BCapital replaces labour in the long run.
  3. CLabour replaces capital immediately.
  4. DLabour replaces capital in the long run.

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Correct answer: B. Capital replaces labour in the long run.

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