Cost of Labor Essay Assignment

Cost of Labor
Cost of Labor

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Cost of Labor

The firm that uses a highly automated and robotics process has a fixed cost of labor, while the firm that makes use of human workers in the assembly line has a variable cost of labor.

In the case of a recession, there is lower demand and, therefore, lower production levels. The firm that uses robots has a fixed production cost and, therefore, their profits reduce with the slow economy. On the other hand, the firm that uses human workers can reduce their variable labor cost to ensure a constant profit margin. Therefore, in a recession, the firm with human workers will have higher profits.

In the case of a boom in the economy, the level of demand increases, and there is a higher level of production. In this scenario, the firm using human labor on the assembly line increases their costs in order to meet the demand. As such, their labor cost increases. Conversely, the firm using robots does not have to increase labor costs and therefore does not change labor costs to meet the increased demand. Therefore, in a boom, the company with an automated assembly line process will have higher profits.

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The beta of a stock refers to a measure of risk associated with the particular stock in lieu of an index stock in the market (Bodie, Kane, & Marcus, 2013). In the case of the two companies, the firm using an automated process will have a higher beta. The reason behind this is the increased efficiency which ensures it outperforms both the market and its competitors during a boom and outperforms their competitors during normal conditions.


Bodie, Z., Kane, A., & Marcus, A. J. (2013). Essentials of Investments. New York: McGraw-Hill/Irwin.

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