12 **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 unitIf 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.

Given Production Technique 1 2 3 4 Labor 4 3 2 5 Capital 2 3 5 1Wage rate w=$2 and rent =$3 Now we will find the cost of production of 10 units of product A by using the given combination of inputs. The cost of production from the first technique: 2*4+3*2=14 The cost of production from the second technique: 2*3+3*3=15 The cost of production from the 3rd technique: 2*2+3*5=19 The cost of production from the 4th technique: 2*5+3*1=13 Since the 4th technique has the least cost of production of 10 units of product A. So 4th technique is most efficient.

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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

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

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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