Suppose the firm’s labor cost rises and the equipment cost falls. How should the firm change...

Suppose the firm’s labor cost rises and the equipment cost falls. How should the firm change its labor and capital usage? What information is needed to answer this question numerically?

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Expert Solution

If a firm's labor cost rises and the equipment cost falls then firm will reduce labor and will increase equipment as equipment cost is reduced.

To answer this question numerically, we need to know labor supply, equipment cost(Capital) and the output desired.

As, production function is

Q= f(L,K)

where

Q= Output

L= Labour

K= Capital

Rahul Sunny answered 2 years ago

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