Final answer:
The statement about manufacturing firms replacing labor with capital to boost efficiency and competitiveness is true. A firm may choose this approach in response to higher labor costs, seeking out production methods that minimize total costs, a dynamic that also affects multinational companies in high-wage countries.
Step-by-step explanation:
The statement that an operating characteristic of modern manufacturing firms is replacing labor with capital to increase efficiency and competitiveness is true. In response to union demands for higher wages or to improve labor productivity, firms may opt for production methods that require more physical capital and less labor. For example, a firm that can produce an item with different combinations of labor and equipment will analyze the costs associated with each method. If labor becomes more expensive, the firm may switch to using more machines if machines are relatively less expensive, aiming to find the technology with the lowest total cost, such as production technology 2 in our hypothetic scenario.
Moreover, in high-wage economies, multinational companies are more likely to utilize production technologies that rely heavily on machinery compared to lower-wage countries. This adaptation to the cost of inputs is part of why the demand curve for labor slopes downward, as firms seek to maximize profits by substituting labor with cheaper alternatives when the costs of labor rise.
Economies of scale can also play a role in this dynamic, allowing firms to produce at a lower per-unit cost as they scale up production with more efficient technology.