Question

Firms can choose to upgrade their technology in the following sense: by paying an additional fixed cost they can reduce their marginal cost of production. This can be represented as a choice between two different technologies l and h, where h features a higher fixed cost and a lower marginal cost than l. Why more firms choose to innovate using technology h after joining the trade union?

Answer 1

For the production efficiency, Firms always choose the benefits of internal and external economies across all the boundaries of the countries. They can also hire technology and skilled laborers from outside the countries. This is the crucial factory of every firms contributing much towards incurring cost of production to produce every unit of output. To increase the production level, it need to focus on the equalizing the marginal cost and the average cost at the equilibrium level. But it has to pay the additional fixed cost for producing every unit of product.

But due to unfavorable economic crisis prevailing the global market the price for the input materials are increasing day by day. The factories on all the countries need to import the input materials from the foreign countries in order to maintain the fine quality of the products. But the proper mix of the input and the production procedures are very important. So the choice of choosing the technology h is considered as the common strategy adopted by the Industrial firms in all the countries. Especially in the developed countries, in order to maintain the stable cost of production, the firms tries to adopt latest technology h even though they tend to join in the trade union.

The trade union usually supports the labor intensive techniques rather than capital intensive techniques. They are in the position to safeguard the employees interest without facing the exploitation by adopting too much dependence of the firms on technology to reduce the fixed cost as well the marginal cost. But the firms are in the position to capture its market in the international global market. So it follows the optimum mix of technology h as well as the labor intensive techniques l for maintaining its reputation across the international boundaries. So the above facts proves that the firms chooses to innovate using technology h after joining the trade union.