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3. Suppose that a firm’s technology is such that it must put 6 workers at each...

3. Suppose that a firm’s technology is such that it must put 6 workers at each of 10 machines. This means that its short-run labor demand elasticity is zero. Which of Marshall’s laws of derived demand support this idea?

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Answer #1

The Marshallvs law of derived demand states that through substitution effect, the labor demand elasticity will be higher if there is many substitute available for the employed category of labor.

In this case, the labor and capital are used in fixed proportion. In the short run the amount of capital is given to the firm and cannot be hanged. Hence, there is no substitution between labor and capital. This implies, due to substitution law of derived demand the own elasticity of labor demand in the short run wilbe zero.

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