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4. Assume that a business firm finds that its profit is greatest when it produces $40 worth of product A. Suppose also that each of the three techniques shown in the following table will produce the desired output. LO2.3 a. With the resource prices shown, which technique will the firm choose? Why? Will production using that technique result in profit or loss? What will be the amount of that profit or loss? Will the industry expand or contract? When will that expansion or contraction 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. With the resources priced as shown in the table, will the firm adopt the new technique? Explain. c. Suppose that an increase in the labor supply causes the price of labor to fall to $1.50 per unit, all other resource prices remaining unchanged. Which technique will the producer now choose? Explain. d. "The market system causes the economy to conserve most in the use of resources that are particularly scarce in supply. Resources that are scarcest relative to the demand for them have the highest prices. As a result, producers use these resources as sparingly as is possible." Evaluate this state- ment. Does your answer to part c, above, bear out this con- tention? Explain. Resource Units Required Price per Technique Technique Technique 3. Unit of Resource Resource 1 Labor $3 3 Land 4. 4 Capital 4. Entrepreneurial 4 4 ability

4. Assume that a business firm finds that its profit is greatest when it produces $40 worth of product A. Suppose also that each of the three techniques shown in the following table will produce the desired output. LO2.3 a. With the resource prices shown, which technique will the firm choose? Why? Will production using that technique result in profit or loss? What will be the amount of that profit or loss? Will the industry expand or contract? When will that expansion or contraction 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. With the resources priced as shown in the table, will the firm adopt the new technique? Explain. c. Suppose that an increase in the labor supply causes the price of labor to fall to $1.50 per unit, all other resource prices remaining unchanged. Which technique will the producer now choose? Explain. d. "The market system causes the economy to conserve most in the use of resources that are particularly scarce in supply. Resources that are scarcest relative to the demand for them have the highest prices. As a result, producers use these resources as sparingly as is possible." Evaluate this state- ment. Does your answer to part c, above, bear out this con- tention? Explain. Resource Units Required Price per Technique Technique Technique 3. Unit of Resource Resource 1 Labor $3 3 Land 4. 4 Capital 4. Entrepreneurial 4 4 ability

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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4. Assume that a business firm finds that its profit is greatest when it produces $40 worth of product A. Suppose also that each of the three techniques shown in the following table will produce the desired output. LO2.3 a. With the resource prices shown, which technique will the firm choose? Why? Will production using that technique result in profit or loss? What will be the amount of that profit or loss? Will the industry expand or contract? When will that expansion or contraction 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. With the resources priced as shown in the table, will the firm adopt the new technique? Explain. c. Suppose that an increase in the labor supply causes the price of labor to fall to $1.50 per unit, all other resource prices remaining unchanged. Which technique will the producer now choose? Explain. d. "The market system causes the economy to conserve most in the use of resources that are particularly scarce in supply. 6. 7. Resources that are scarcest relative to the demand for them have the highest prices. As a result, producers use these resources as sparingly as is possible." Evaluate this state- ment. Does your answer to part c, above, bear out this con- tention? Explain. Resource Units Required Price per Technique Technique Technique 3. Unit of Resource Resource 1 Labor $3 3. Land 4. 2 4. 2 Capital 2 4 Entrepreneurial 4 ability Mb
Transcribed Image Text:4. Assume that a business firm finds that its profit is greatest when it produces $40 worth of product A. Suppose also that each of the three techniques shown in the following table will produce the desired output. LO2.3 a. With the resource prices shown, which technique will the firm choose? Why? Will production using that technique result in profit or loss? What will be the amount of that profit or loss? Will the industry expand or contract? When will that expansion or contraction 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. With the resources priced as shown in the table, will the firm adopt the new technique? Explain. c. Suppose that an increase in the labor supply causes the price of labor to fall to $1.50 per unit, all other resource prices remaining unchanged. Which technique will the producer now choose? Explain. d. "The market system causes the economy to conserve most in the use of resources that are particularly scarce in supply. 6. 7. Resources that are scarcest relative to the demand for them have the highest prices. As a result, producers use these resources as sparingly as is possible." Evaluate this state- ment. Does your answer to part c, above, bear out this con- tention? Explain. Resource Units Required Price per Technique Technique Technique 3. Unit of Resource Resource 1 Labor $3 3. Land 4. 2 4. 2 Capital 2 4 Entrepreneurial 4 ability Mb
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