Final answer:
Inputs such as labor, materials, and machinery are the factors of production. A firm may alter the mix of these inputs in response to increased labor costs to maintain efficiency and control production expenses. Typically, this might involve relying on more machinery and fewer labor hours.
Step-by-step explanation:
Inputs are the essential resources such as labor, materials, and machinery that are utilized in the production of goods and services, these are commonly referred to as the factors of production. Decisions on the mixture of these inputs can significantly influence the cost-effectiveness and efficiency of the production process. In the context of responding to union demands for higher wages, a firm may adjust its production method to use more physical capital (machinery) and less labor to maintain or improve labor productivity.
For instance, if the cost of labor increases, as in the case of a rise in wages from $16 to $20 an hour including benefits, a company might find it more economical or strategic to alter its mix of inputs by relying more heavily on machinery rather than labor to produce the same goods. Such an adaptation could lead to a reduction in total labor hours used and potentially minimize the impact of increased labor costs. The company may also consider this shift to be a means to lower the risk of labor disputes or strikes, despite the fact that machines represent a fixed cost with their own set of expenses.