alleryStart learning →Firms facing union demands for higher wages may choose production methods that use more:
AOvertime hours
BPhysical capital
CUnskilled labor
DTemporary labor
Answer & Solution
Correct answer: B. Physical capital
1. Firms respond to a higher price of labor by substituting away from it.
2. Firms may be confronted with union demands for higher wages.
3. They may then choose production methods that involve more physical capital and less labor.
4. That substitution results in increased labor productivity.
_Source: OpenStax Principles of Microeconomics for AP Courses 2e (CC BY 4.0), Ch 15 'Labor Markets and Income'_
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