Explain which factors facing the firm to make demand
Consider a profit maximizing firm producing a differentiated product by use of capital and labour. Although the firm can use both capital and labour as inputs, and it is fairly easy to substitute between these inputs, the firm relies heavily on labour when producing the output. There are a number of products on the market that are very similar, although not identical, to the product produced by the firm. Discuss which factors facing this firm is likely to make its demand for labour 1) more sensitive to wage changes and 2) less sensitive to wage changes.
