Show how firms choose which technology to use in production using the example of a fall...

Show how firms choose which technology to use in production using the example of a fall in the price of energy relative to the price of labour

Expert Solution

Answer-Firms have two choices to choose their technology to use in the production process-

1. Labor intensive technology -It is a type of technology for the production process of a company in which labor price is less than the price of use of machines, that's why in developing and in largely populated countries labor-intensive technique is followed because labor are available in the low prices in these conditions.

2. Capital intensive technology-It is a type of production process where labor cost is more than the machines process production cost, this technique used in those countries where labor cost is higher than the cost of a capital intensive process of production.

A fall in the price of energy relative to the price of labor because when there will be fall in the price of the energy source of production than labor cost will be influenced, in this situation production will take place with a capital intensive technique which will result in the fall of demand of labor in the economy that's why when there will fall of in the price of energy, in this situation company will prefer capital intensive technology instead of labor-intensive technology

Rahul Sunny answered 1 year ago

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