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Unformatted text preview: Which technique will the firm now choose? Answers: a. The firm will choose technique 2. Its land cost is $2x2 = $4, its labor cost is $4x2 = $8, its capital cost is $3x2 = $6, and the cost of its entrepreneurial ability is $5x1 = $5, for a total cost of $4 + $8 + $6 + $5 = $23. By comparison, each of the other techniques has a total cost of $24. b. Yes. If each blanket sells for $26 and can be produced for $23, the firm will make $3 profit on each one. c. Yes. The cost of producing a blanket would fall to $2x2 + $4x1 + $3x3 + $5x1 = $22. This is $1 cheaper than its current production technique. d. Technique 1 is now cheapest, with a total cost of $26. By contrast, techniques 2, 3 and 4 now cost $27, $30, and $28, respectively....
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- Spring '08
- Economics, $1, $3, $24, $22, $4 3 2 1