Final answer:
It is true that modern manufacturing firms often replace labor with capital to improve efficiency and competitiveness, especially in response to rising labor costs. Firms aim for the production technology with the lowest total cost, and global businesses adapt their production methods based on the cost of labor and capital in different countries.
Step-by-step explanation:
It is true that an operating characteristic of modern manufacturing firms is that labor is often replaced with capital to increase efficiency and competitiveness. When labor costs increase, perhaps due to union demands or higher wages, companies are more likely to invest in physical capital and technology that enables them to maintain or increase productivity with less reliance on manual labor.
Firms are incentivized to choose production technologies that have the lowest total costs. For example, if a firm has the option to produce an item with different combinations of labor and machinery, and the cost of machinery rises, the firm would expect a shift toward using more labor and less capital. However, in a long-term view and under stable costs, with more capital, firms can efficiently produce higher outputs before facing diminishing productivity.
Another aspect influencing this trend is the global nature of business. Companies like Coca-Cola or McDonald's may use more capital-intensive production technologies in high-wage countries, and more labor-intensive methods in lower-wage countries, responding dynamically to the relative costs of labor and capital inputs in different markets. This flexibility ensures that production costs are minimized and profitability is maximized.