Question

Please answer a-d

Assume that a business firm finds that its profit ia greatest when it produoes $40 worth of product A. Suppose also thet each of the three techniques shown in the table below will produce the deslred output LO3 Resource units required Labor Land Capital Entrepreneurial ability 3 2 a. With the resource prices shown, which technique will the firm choose? Why? Will production using that technique entail 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 entrepreneunal ability. In view of the resource prices in the table, will the firm adopt the new technique? Explain your answer 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 ane 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 statemernt. Does your answer to part c. abowe, bear out this contertion? Explain. Scanned with CamScanner

Answer 1