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Unformatted text preview: 2-9 (Key Question) Assume that a business firm finds that its profit it greatest when it produces $40 worth of product A. Suppose also that each of the three techniques shown in the table on page 43 will produce the desired output.Resource Units RequiredResourcePrice per unitof resourceTechnique1Technique2Technique3LaborLandCapitalEntrepreneurial ability$3422522424423254a.With the resource prices shown, which technique will the firm choose? Why? Will production entail profit or losses? What will be the amount of profit or loss? Will the industry expand or contract? When will that expansion end?b.Assume now that a new technique, technique 4, is developed. It combines 2 units of labor, 2 of land, 6 of capital, and 3 of entrepreneurial ability. In view of the resource prices in the table, will the firm adopt the new technique? Explain your answer.c.Suppose that an increase in labor supply causes the price of labor to fall to $1.50 per unit, all other resource prices being unchanged. Which technique will the producer...
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This note was uploaded on 09/15/2008 for the course ECON 231 taught by Professor Victovio during the Spring '08 term at Drexel.
- Spring '08