Relative prices affect afirm long run expansion path

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Suppose the recent recession led to a drop in wages such that the price of labor fell by 25 percent.Economists predict that this drop will be sustained in the long run. Furthermore, the user cost ofcapital has not changed, nor is it predicted to. How does this change in relative prices affect afirm’s long run expansion path? Please explain using both words (i.e., economic intuition) and agraph.

Reference no: EM131098388

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