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.
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.
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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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
Entrepreneurial
4
4
ability
Mb
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