In their production decisions, why are some firms substituting capital for labor? Discuss both the prices...

In their production decisions, why are some firms substituting capital for labor? Discuss both the prices of inputs and the firms' technologies.

Expert Solution

SOLUTION:-

* If th marginal output per dollar spent on capital is more than that of marginal output per dollar spent on labour then it would be obvious that the formswill be more advantages if they have more capital in play rather than in labour and that is the reason why the firm can substitute more labour with that of capital.

* A part from that can also be explained in another way where for one unit of outpu if your input cost for labour is more than of capital then obviously it would be a better decision to choose capital rather than that of labour and that is the reason why you can remove labour and replace that with capital where is the farmers technologically advanced than the productivity can be improved by applying more capital on the whole.

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Rahul Sunny answered 1 year ago

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