Explain Why the Presence of Significant Adjustment Costs Might Induce

question 11

Essay

Explain why the presence of significant adjustment costs might induce a firm to hold excess labor. Would you expect adjustments costs to be high or low in a firm whose workers' skills are very specific to the firm? Explain.

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Definitions:

Required Sales

The amount of sales a company needs to achieve in order to cover all its costs and reach its break-even point.

Variable

An element or factor that is subject to change or variation, often used in financial analysis or scientific experiments.

Fixed

Refers to expenses that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.

Contribution Margin

The difference between a company's sales revenue and variable costs, which contributes to covering its fixed costs and generating profit.