Question

A firm is hiring labor and capital in the cost-minimizing combination. Which of the following would cause the firm to increase hiring capital and decrease hiring of labor?

Answer 1

The productivity of labor increases by 5% would cause the firm to increase hiring capital and decrease hiring of labor

Step-by-step explanation:

A company can convert input data to output data. So, it gets divided the data into broad categories called production factors. Productivity variations, or more precisely the marginal products of labour, work in the same way as differences in real wages. Remember that marginal prices depend on both - real wages and the productivity.

If in case, productivity increases, perhaps because the company has increased its capital base, thereby marginal costs will decrease. Companies will produce more products and employ more employees. Conversely, if productivity drops, companies will produce less and destroy jobs.