Question

A firm is hiring labor and capital in the cost-minimizing combination. Which of the following would cause the firm to increase hiring capital and decrease hiring of labor?

Answer 1

When a firm faces union demands for higher wages, they may increase hiring of capital and decrease hiring of labor. This can result in increased labor productivity. In the United States in the 1970s, firms shifted towards more capital and less labor due to union demands for higher wages.

Step-by-step explanation:

When a firm is confronted with union demands for higher wages, they may choose to increase hiring of capital and decrease hiring of labor. This is because using more physical capital and less labor can result in increased labor productivity.

For example, if the cost of machines increases relative to labor, the firm may shift towards using less capital and more labor to minimize costs. In this situation, the firm would hire more capital and decrease hiring of labor.

In the United States in the 1970s, this situation occurred where firms faced union demands for higher wages, causing a shift towards more capital and less labor in production methods.

Answer 2

The productivity of labor increases by 5% would cause the firm to increase hiring capital and decrease hiring of labor

Step-by-step explanation:

A company can convert input data to output data. So, it gets divided the data into broad categories called production factors. Productivity variations, or more precisely the marginal products of labour, work in the same way as differences in real wages. Remember that marginal prices depend on both - real wages and the productivity.

If in case, productivity increases, perhaps because the company has increased its capital base, thereby marginal costs will decrease. Companies will produce more products and employ more employees. Conversely, if productivity drops, companies will produce less and destroy jobs.