Question

Would the use of more labour-intensive techniques necessarily reduce the size of the investible surplus?

Would the use of more labour-intensive techniques necessarily reduce the size of the investible surplus?

Homework Answers

Answer #1

At a particular proportion of labour and capital, the efficiency of the output will be high where this is leading to investible surplus if any. However if more labour intensive techniques are used then the labour amount will increase and this can reduce the efficiency of the combination of both labour and capital and to get the same output, the cost of production increases and this actually gets to reduce then investible surplus is reduced. However is the cost of switching between labour and capital costs is same then investible surplus might not decrease.

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