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Chapter 7: Q 25. (page 184)

In choosing a production technology, how will firms react if one input becomes relatively more expensive?

Short Answer

Expert verified

Firms will switch a cheaper input for an expensive input if one becomes comparatively more expensive.

Step by step solution

01

Step 1. Introduction

Production technology is defined as the technology utilized to manufacture a product.

As a result, it is viewed as a system for scheduling products production and controlling stocks in order to reduce costs.

Businesses in the manufacturing industry use it to discover production constraints.

02

Step 2. Explanation

Production technology is defined as the technology utilized to manufacture a product.

As a result, it is viewed as a system for scheduling products production and controlling stocks in order to reduce costs.

Businesses in the manufacturing industry use it to discover production constraints.

A production technology is a mix of capital and labor that is used to make a product.

Firms will switch a cheaper input for an expensive input if one becomes comparatively more expensive.

For example, if labor costs grow, businesses would switch to a production technology that relies more on capital rather than labor.

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