Question

An entrepreneur can use either capital or labour in the production process. Out of the options A, B, C and D given below, which two would the entrepreneur choose if he had to replace labour with capital? Justify your answer.

Options

• Price of Capital	Price of Labour
  Constant	Falling

• Price of Capital	Price of Labour
  Falling	Rising

• Price of Capital	Price of Labour
  Rising	Constant

• Price of Capital	Price of Labour
  Falling	Falling

Answer 1

Price of Capital	Price of Labour
Falling	Rising

Explanation:

Option (B) because cheaper capital replaces expensive labour.