Final answer:
Fixed labor costs are expenditures that do not change with production levels, such as contracted salaries, and are consistent regardless of output. Strategic production decisions may be influenced by the level of these costs, particularly in response to changes in wage demands.
Step-by-step explanation:
Factory labor costs can be categorized into fixed labor costs and variable costs. Fixed labor costs are expenses that do not change with the level of production output, such as salaries that are due regardless of how much is produced. For example, some employees may be on a fixed contract where they are paid a set amount each period, regardless of the number of hours worked or units produced. This contrasts with variable labor costs, which fluctuate with the level of production, like overtime pay or wages for hourly workers that increase with more hours worked.
When analyzing production costs, understanding the difference between fixed and variable costs is important for making strategic decisions about production methods. In the presence of higher wage demands, firms may shift towards more capital-intensive production methods to maintain control over their total costs. The choice between using more labor or more machines can be influenced by changes in wages, as higher fixed labor costs might encourage a shift towards using less labor-intensive technologies.