Question

3. Bloomberg Business week, 2009 “ US companies spend usually an enormous amount on worker training estimated at 134 billion worldwide- but they have been cutting back starting in 2008 when the financial crisis began. This will definitely reduce the opportunity of workers to acquire skills, especially needed in the future.” Which curve will be affected by US companies as a result of the above and in what way? The ATC / AVC or the LRAC? Show your choice with a graph and suggest the change. Answer with a graph to show the change.

Answer 1

ANSWER:-

As firms invest in the training of the workers to enhance productivity, it is considered as an investment on human capital. So the fixed cost of the firm goes up.

Since the 2008 global crisis, fiems are cutting back on the workers' training then it is reducing the fixed costs for the firms. So ATC will shift down.

ATC will shifts downward from ATC1 to ATC2 as shown in the figure.

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