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When labour becomes relatively cheaper than capital, a profit-seeking entrepreneur in a capitalist economy is most likely to adopt a:
AMethod dictated by the planning authority
BCapital-intensive method of production
CLabour-intensive method of production
DMethod that ignores relative factor prices
Answer & Solution
Correct answer: C. Labour-intensive method of production
1. An entrepreneur chooses the technique that minimises cost.
2. Cheaper labour lowers cost when more labour is used.
3. So a labour-intensive method is chosen when labour is relatively cheap.
4. Capital-intensive would suit costlier labour, and the other options deny the role of factor prices in capitalism.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 1 Unit II "Basic Problems of an Economy and Role of Price Mechanism", p.3_
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