Consider the “production” of food, which uses various types of inputs: “labor” (e.g., cooks); “capital” (e.g., restaurants and equipment); and “raw materials” (e.g., ingredients).
Consider the “production” of food, which uses various types of inputs: “labor” (e.g., cooks); “capital” (e.g., restaurants and equipment); and “raw materials” (e.g., ingredients). Suppose that labor accounts for 50% of fast food costs while capital and raw materials account for 25% each.
Briefly explain whether each of the following parts are true, false, or uncertain
a. If raw material prices double (i.e., increase by 100%) while labor and capital prices are unchanged, then using the same mix of labor, capital, and raw materials will require a 25% increase in expenditures.
b. If raw material prices double (i.e., increase by 100%) while labor and capital prices are unchanged, then achieving the same health outcomes (i.e., producing the same amount of “output”) will require a 25% increase in expenditures.
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