Question

Suppose a firm can produce 70 units of a product, Zeni, by combining labor land, capital and entrepreneurial ability, as in the four alternative techniques shown in the table below. Assume further that the firm can hire labor at $3 per unit, and at $3 per unit, capital at $6 per unit, and entrepreneurship at $9 per unit Labor Land Capital Entrepreneurship Techniques ABC 4 106 53 52 1 Refer to the provided table. Which technique is the most economically efficient way of producing Zenia? M oe Choice 0 0 0 0 Prey 23 30 Next >

Answer 1

Price of labor = $3 per unit.

Price of land = $3 per unit

Price of capital = $6 per unit

Price of enterprenurship = $9 per unit.

Cost of using Techniques A

Cost = ($3) (4) + ($3) (5) + ($6) (5) + ($9) (1)

Cost = $12 + $15 + $30 + $9

Cost = $66

Cost of using Techniques B

Cost = ($3) (10) + ($3) (3) + ($6) (2) + ($9) (1)

Cost = $30 + $9 + $12 + $9

Cost = $60

Cost of using Techniques C

Cost = ($3) (6) + ($3) (3) + ($6) (4) + ($9) (1)

Cost = $18 + $9 + $24 + $9

Cost = $60

Cost of using Techniques D

Cost = ($3) (5) + ($3) (3) + ($6) (4) + ($9) (1)

Cost = $15 + $9 + $24 + $9

Cost = $57

Hence, the cost is lower when the firm use Technique D.

So, Technique D is the most economically efficient way of producing Zenia.

Answer: Option (D). i.e., technique D.