Other things being equal, a firm's demand for labor is likely to be more elastic than its demand for capital if
A) labor costs are a smaller proportion of total costs than capital costs.
B) the firm uses labor-intensive production techniques.
C) substitutions of one resource for another are difficult.
D) the demand for its final product is price elastic.

Question

Quizplus · Accepted Answer

Labor-intensive production techniques imply that labor costs represent a significant portion of the total costs of production. Therefore, firms using these techniques are more sensitive to changes in labor costs, making their demand for labor more elastic than the demand for capital.

Other Things Being Equal, a Firm's Demand for Labor Is