Labor costs represent a large percentage of total costs for many firms.
According to data from the Bureau of Labor Statistics, U.S. labor costs were
up \(0.8 \%\) in 2013 , compared to \(2012 .\)
a. When labor costs increase, what happens to average total cost and marginal
cost? Consider a case in which labor costs are only variable costs and a case
in which they are both variable and fixed costs. An increase in labor
productivity means each worker can produce more output. Recent data on
productivity show that labor productivity in the U.S. nonfarm business sector
grew by \(1.7 \%\) between 1970 and 1999 . by \(2.6 \%\) between 2000 and 2009 ,
and by \(1.1 \%\) between 2010 and 2013
b. When productivity growth is positive, what happens to the total product
curve and the marginal product of labor curve? Illustrate your answer with a
diagram.
c. When productivity growth is positive, what happens to the marginal cost
curve and the avernge total cost. curve? Illustrate your answer with a
diagram.
d. If labor costs are rising over time on average, why would a company want to
adopt equipment and methods that increase labor productivity?