Answer to Question #82592 in Microeconomics for DD

Question

What is capital saving? The trouble I'm having is with:
1. What does it mean when a country adopts it as a strategy?
2. At a firm's level it means raising the marginal product of labor relative to capital in the same capital labor ratio. My trouble is with the last part. That says "in the same capital labor ratio" because how can we increase the marginal product of a factor without increasing the amount of the factor we use?
3. is there a way we can mathematically plan for it? or predict it?

Answer 1

Capital saving is a strategy when a country uses less capital and more of other inputs in production.

1. When a country adopts it as a strategy, then it uses more labor.

2. At a firm's level it means raising the marginal product of labor relative to capital in the same capital labor ratio. We can increase the marginal product of a factor without increasing the amount of the factor we use, because MP decreases with the increase of production.

3. We can mathematically plan for capital saving, if we calculate the amount of labor we need in production.