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A firm has to choose between two technologies; both produce same output with one being labor...

A firm has to choose between two technologies; both produce same output with one being labor intensive and other being capital intensive. The firm will use labor intensive technology when?

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Answer #1

The firm will use labor-intensive technology when the marginal product from labor-intensive technology is higher than the marginal product of capital intensive technology. It is because this will increase the benefit of the firm as the firm can produce and sell more output with labor-intensive technology. The other condition for this is the cost of labor-intensive technology is lower than the cost of capital-intensive technology. This cost and benefit analysis will help the firm to make decision.

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