12. Answer the question based on the following information: Suppose 10 units of product A can be produced by employing just labor and capital in the four ways shown below. Assume the prices of labor and capital are $2 and $3, respectively. Production Techniques 1 2 4 Labor 4 3 2 Capital 2 3 1 If the price of product A is $0.50, and the firm is producing efficiently the firm will realize

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**Question 12: Efficiency in Production**

Suppose 10 units of product A can be produced using labor and capital in the four ways shown below. The prices of labor and capital are $2 and $3, respectively. 

**Production Techniques Table:**

|               | **Technique 1** | **Technique 2** | **Technique 3** | **Technique 4** |
|---------------|-----------------|-----------------|-----------------|-----------------|
| **Labor**     | 4               | 3               | 2               | 5               |
| **Capital**   | 2               | 3               | 5               | 1               |

- **Labor cost:** $2 per unit
- **Capital cost:** $3 per unit

If the price of product A is $0.50, and the firm is producing efficiently, determine the outcome.

**Analysis:**

To find the most efficient production technique, calculate the total cost for each technique. Multiply the units of labor and capital by their respective prices and sum them up. Then, compare these costs to identify the lowest one, which indicates the most efficient technique.

Finally, calculate the potential profit by considering the revenue from selling 10 units at $0.50 each and subtracting the production cost using the chosen technique.
Transcribed Image Text:**Question 12: Efficiency in Production** Suppose 10 units of product A can be produced using labor and capital in the four ways shown below. The prices of labor and capital are $2 and $3, respectively. **Production Techniques Table:** | | **Technique 1** | **Technique 2** | **Technique 3** | **Technique 4** | |---------------|-----------------|-----------------|-----------------|-----------------| | **Labor** | 4 | 3 | 2 | 5 | | **Capital** | 2 | 3 | 5 | 1 | - **Labor cost:** $2 per unit - **Capital cost:** $3 per unit If the price of product A is $0.50, and the firm is producing efficiently, determine the outcome. **Analysis:** To find the most efficient production technique, calculate the total cost for each technique. Multiply the units of labor and capital by their respective prices and sum them up. Then, compare these costs to identify the lowest one, which indicates the most efficient technique. Finally, calculate the potential profit by considering the revenue from selling 10 units at $0.50 each and subtracting the production cost using the chosen technique.
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