Question

1. Under what conditions would Labor be replaced by Capital? What would be examples of such an action? Be specific and provide examples. When does labor replace labor? Under what conditions?  Be specific and provide examples.
2. True or False and why: Companies move to other countries like Mexico and China from the US, because the other countries have cheaper labor costs than in the US.
3. If the MR is greater than MC, then what should a company in the perfect competition industry decide to do:

A. Sell more

B. Sell less.

C. Try to raise prices.

D. Lower the price

Answer 1

Ans- The company and firms replaces labor with capital in order to increase productivity and to reduce the unit cost of production. This process is knows as capital-labor substitution. Example of such a substitution could be in many areas of production department where there are repairing blemishes and tiny errors.

Secondly, labor replaces labor when the one labor has outdated knowledge or outdate skills. For example: In a company where tally was used needed workers for tally. But when SAP came then the workers who knows how to use SAP would replace the previous labor.

TRUE:-Companies move to other countries like Mexico and China from the US, because the other countries have cheaper labor costs than in the US. These countries has cheap labor cost because of availability of labor is more. Supplu of labor is more than demand. This process can be called as outsourcing.

Ans- Sell more.

Explanation-If MR exceeds MC, then the producer will continue producing as it will add to his profits.