Question

If a firms demand condition is not met in the long run, what will it do to compensate? will it hire more labor or less labor? (Hint: Capital is not constant in long run, but variable.)

Answer 1

IN ANY RPODUCTION SECTOR UNDER SHORT RUN NOT ALL FACTORS CAN BE VARIED DUE TO SOME COST CONSTRAINT AND UNAVAILABILITY OF RESOURCES. NOW HERE GIVEN THAT THE FIRM IN THE LONG RUN FAILS TO MEET THE DEMAND. SINCE IN THE LONG RUN IT CAN VARY ALL IT'S INPUTS IT MAY DO THE FOLLOWING:

1. THE FIRM CAN EMPLOY MORE LABOUR TO INCRESE PRODUCTION TO MEET THE DEMAND.
2. IT MAY RAISE WAGES OF LABOUR.
3. IT MAY ADOPT A CAPITAL INTENSIVE TECHNIQUE OF PRODUCTION AND EMPLOY MORE CAPITAL IN PRODUCTION.
4. IT MAY INCREASE BOTH CAPITAL AND LABOUR TO CHANGE THE OUTPUT.

THE FIRM MAY ADOPT ANY OF THE ABOVE WAYS SIMULTANEOUSLY TO MEET THE DEMAND.

answered by: anonymous