Q Discuss the trade-off between Labor and Capital production variables. Specifically, what are the consequences of reducing capital investments over the long run (in terms of wage growth and productivity improvements)?
The labor and capital are the two most important members of the family of the factors of production. A firm can use a various types of capital including the financial capital that helps a firm to make a financial investment that in turn will help the firm two grow more. To increase the production in a sustainable level a producer has to balance between the amount of the labors and the capital. On one side, a higher labor power would help the firm to produce more, but on the other side, it would increase the total cost of the firm through its variable cost. Again, an increase of the capital investment, increase the productivity of the firm.
