Write problem set Speech or Presentation Example | Topics and Well Written Essays - 500 words

Write problem set - Speech or Presentation Example this is because, the substitution effect changes. The quantity of capital is less with more wage rate In the long run, a decrease in the price of capital will lead to an increase in labor units. This is because the proportions have a substitution effect. The total effect will be less capital and more labor employment. a) According to the substitution effect, I would expect a company to have a high own wage elasticity of demand if the other factors of production such as capital can easily be used as substitutes for labor. This would make it easy for labor to be reduced or increased depending on its substitute’s quantities. b) If the product being produced in an industry has high price elasticity, then it means that the labor elasticity of demand will also be high. If an industry is producing coffee and the elasticity of demand for coffee keeps changing, then the own wage labor rate will also change relatively to the elasticity of demand of the product. c) When all the other factors of production have a high elasticity of demand, then it also means that the labor elasticity of demand will be high thus elastic. If a company’s capital demand keeps changing for example, then it means even labor demand will change as the two are co-related. A company will only be able to hire what it can pay for thus the elasticity. d) If the total cost of production of a company is highly contributed by labor, then the labor elasticity of demand will tend to be highly elastic. This is a scale effect that means that, the more labor in an industry contributes highly to more total costs in production, the more the company is likely to demand labor. If product cost is low for example and the company requires to spend less on production, they will cut on labor because it has the bigger percentage hence the