If technology dictates that labor and capital must be used in fixed proportions,an increase in the price of capital will cause a firm to use:

A) more labor as a consequence of the substitution effect.
B) more labor as a consequence of the output effect.
C) less labor as a consequence of the substitution effect.
D) less labor as a consequence of the output effect.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, leading consumers to replace more expensive items with cheaper substitutes.

Output Effect

The impact that changes in production levels have on a company's total revenue, often influenced by market demand and price.

Fixed Proportions

A production scenario where inputs must be combined in strict, fixed ratios to produce an output, allowing no substitutions.