Ppose chniques 1or ucng 1 shown in ie tabic above. a. Given the resource prices shown, which production technique would the firm use? Why? b. Suppose the firm can sell blankets for $26 each. Would the firm be profitable? c. Assume a new technique is developed that economizes on the relatively expensive labor. It requires 2 units of land, one unit of labor, 3 units of capital, and 1 unit of entrepreneurial ability. Would the firm adopt this new technique? d. Suppose the firm's cost of capital rises to $5, all other values being the same. Which technique would the firm now choose?

Ppose chniques 1or ucng 1 shown in ie tabic above. a. Given the resource prices shown, which production technique would the firm use? Why? b. Suppose the firm can sell blankets for $26 each. Would the firm be profitable? c. Assume a new technique is developed that economizes on the relatively expensive labor. It requires 2 units of land, one unit of labor, 3 units of capital, and 1 unit of entrepreneurial ability. Would the firm adopt this new technique? d. Suppose the firm's cost of capital rises to $5, all other values being the same. Which technique would the firm now choose?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter13: General Equilibrium And Welfare

Section: Chapter Questions

Problem 13.9P

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Question

Problem 2.
The diagram below indicates four flows: one flow of resources, one 1 flow of goods and services, one monetary flow of income
payments, and one monetary flow of payments to the sellers of the goods and services.
Identify the flows of economic resources, goods and services, and monetary payments between the Household Sector and the Business
Sector on the four lines in the diagram below:
Goods and services
• Wages, rent, interest, and profit income
Land, labor, capital, and entrepreneurship
Consumer expenditure.
Resource
Market
Businesses
Households
Product
Market

ECN 210
Dr. M. Di Liberto
Principles of Economics I: Microeconomics
Worksheet - Chapter 2
Problem 1
Suppose there are three techniques for producing 1 wool blanket (Techniques 1, 2, and 3), as shown in the table above.
а.
Given the resource prices shown, which production technique would the firm use? Why?
b. Suppose the firm can sell blankets for $26 each. Would the firm be profitable?
c.
Assume a new technique is developed that economizes on the relatively expensive labor. It requires 2 units of land, one unit of labor, 3 units
of capital, and 1 unit of entrepreneurial ability. Would the firm adopt this new technique?
d. Suppose the firm's cost of capital rises to $5, all other values being the same. Which technique would the firm now choose?
Price per
Unit of
Resource
Resources Required
Resource
Technique 1
Technique 2
Technique 3
Technique 4
Units
Costs
Units
Costs
Units
Costs
Units
Costs
Land
$2
2
3
Labor
$4
2
1
Capital
Entrepreneurship
$3
$5
1
2
3
1
1
1
1
Total
Price per
Unit of
Resources Required
Resource
Resource
Technique 1
Technique 2
Technique 3
Technique 4
Units
Costs
Units
Costs
Units
Costs
Units
Costs
Land
$2
2
2
2
Labor
$4
3
2
1
1
$5
$5
Capital
2
3
3
Entrepreneurship
1
1
1
1
Total

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