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Artificial intelligence (AI) is making labor easier to substitute in favor of capital. Provide an appropriate...

Artificial intelligence (AI) is making labor easier to substitute in favor of capital. Provide an appropriate graphical representation and verbal explanation of how this is likely to affect a firm’s cost minimization problem. What would happen to a cost-minimizing firm’s input choice?

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Answer #1

Intially, iso-cost line is KL when firm used OK & OL amount of capital and labour & producing 100 units of output represented by Iso-quant (IQ)Q1 .

when technical progress takes place due to use of artificial intelligence cost of production declines and Iso- cost line shifts backward to K1L1 while producing same output at IQ2 . Consequently capital labour ratio also increased.

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