Question

5. Consider a firm that uses two inputs: skilled workers and computers. Explain what it means if skilled workers and computers are complements in production. Specifically, if the price of computers falls, and skilled workers and computers are complements, will the firm want to hire more or fewer skilled workers? (2 points)

Answer 1

Skilled worker and computers are two inputs and complement in production. Two inputs are said to be complements in production, when a fixed proposition of the two inputs uses in the production of a good. In the same way, if skilled worker and computer are complements in production It means a fixed proposition skilled worker and computer. (Lets say one worker per computer) uses in the production of good If the price of computer falls, firm can buy more computer and since skilled worker and computer are complements, uses in a fixed proportion, a increase in no. computers will require more workers (so that maintain the fixed proportion. So, this will lead the firm to hire more workers.