ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -As real wages rise in the economy, it creates an incentive for firms to invest in more capital to raise labour productivity so the firm can continue to afford the cost of more expensive labour. Therefore, firms become less labour intensive and more capital intensive.

Detailed explanation-2: -Capital intensive leads to an increase in operating and other maintenance costs whereas the labour intensive leads to optimum utilization of resources which reduces the production cost.

Detailed explanation-3: -In capital intensive techniques more of capital (modern plants and machines) is used and less of labour. Degree of capital intensive technique depends on the ratio of labour to capital.

Detailed explanation-4: -If business resources are not capable of funding such a huge investment then they might decide to go for labor intensive production. Cost of production might be another important factor which senior management might consider in deciding between labor intensive and capital intensive production.