As a local union representative I would like to bring up the

As a local union representative, I would like to bring up the fact that there is a possibility some jobs could be lost as a result of the tax credits being given to automobile manufacturers to keep them in Detroit. The tax credit would help manufacturers by giving them a tax reduction for using capital and high tech equipment to build their cars. They would have less expense for overall production and could continue to use this equipment to build high quality vehicles. With production function, new technology can change the level of output. What happens is that there will be more output with the same inputs, or the same output for less input (Bhat & Rau, 2008). My concern is that with the tax credits, people will lose their jobs because the same outcome can be achieved with less people. There is a fixed number of car builders, but capital has increased, but there is no change to output. In response to the union representative, I would say some people may lose their jobs, but it would likely be less than if the entire firm moves to another state. The goal is profit maximization, and right now the company needs to rationalize staying in Detroit. Essentially, even though some people may lose their jobs, many will not. Using the high end equipment is cost saving will increase output level. If we do decide to keep all employees we could manufacture more vehicles and make more money. We have to review all elements that go into cost, and weigh the different levels of capital verses the fixed rate of employees to determine production function. The Law of Diminishing Marginal Product says that “as use of variable input increases, a point is reached beyond which its marginal product decreases” (Thomas & Maurice, 2008 p.6). If something doesn’t change, and we didn’t move, we may have to change the price of our vehicles and risk consumers going to another competitor.

what reply would you provide to this classmate?

Solution

The suppky depends upon the demand. The cost of living of an individual increases with income, so the demand increases. This creates demand which increases the price of the product. The Law of Diminishing Marginal Product shows an increase of variable input affecting the marginal product at a point. This is the point of saturation which changes with the decline in demand. There can be chances where  as a union representative would be that the investment tax credit would decrease the price of capital to labor.Labor union firms will most likely not accept the investment tax credit because the higher capital to labor ratio would result in a loss of jobs. The solution to that would be to create more supply by lowering the prices of the product or adding some kind of free items to attract customers.