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Unformatted text preview: Jason Huang Macro Economics 9/13/10 Chapter 2 Key Questions 8, 9, 10 8. With current technology, suppose a firm is producing 400 loaves of banana bread daily. Also assume that the least-cost combination of resources in producing those loaves is 5 units of labor, 7 units of land, 2 units of capital, and 1 unit of entrepreneurial ability, selling at prices of $40, $60, and $20 respectively. If the firm can sell these 400 loaves at $2 per unit, will it continue to produce banana bread? If this firms situation is typical for the other makers of banana bread, will resources flow to or away from the bakery good? 9. Assume that a business firm finds that its profit to greatest when it produces $40 worth of product A. suppose also that each of the three techniques shown in the table below will produce the desired output: a. With the resource prices shown, which technique will the firm choose? Why? Will production using that technique entail profit or loss? What will the amount of that profit or loss? Will the industry expand or contract? When will the expansion or contract end?...
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- Spring '08