Answer to Question #293945 in Macroeconomics for Safir ul rehman

Question

 If labor and capital can be substituted for each other

in the production of both commodities, when can

we say that one commodity is capital intensive and

the other labor intensive?

Answer 1

Capital-Labor Substitution.

When labor and capital can substitute in the production of a commodity, we can rely on the cost of production arising from each, to decide on which is intensive to the production of the commodity. Whichever is cheaper, can be termed as the intensive in the case for the production of the good. If labor is cheap to Capital, then it is labor intensive to produce the commodity. If capital is cheaper, then it is capital intensive to produce the commodity.