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

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 following law of derived demand by Marshall is applicable in this case scenario:-

When the cost of employing the category of labor is a large share of the total costs of production

Short-run labor demand elasticity only includes the scale effect, so capital is assumed constant and there is no substitution effect. Marshall’s four laws tell us that the firm’s labor demand will be more elastic than the industry labor demand and the labor demand in the long run will be more elastic than in the short run. But the law given above focus on the scale effect and hence is the only one primarily applicable in this case.

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