Suppose that the table below shows an economys relationship between real output

ID: 1092586 • Letter: S

Question

Suppose that the table below shows an economys relationship between real output and the inputs needed to produce that output:

Input
Quantity

Real
GDP

300.00

$400

225.00

300

150.00

200

Round your answer to two decimal places.

1. What is the level of productivity in this economy?

2. What is the per-unit cost of production if the price of each input unit is $5?

3. Assume that the input price increases from $5 to $6 with no accompanying change in productivity. What is the new per-unit cost of production?

Round your answer to three decimal places.

4. Suppose that the increase in input price does not occur but, instead, that productivity increases by 25% percent.

What would be the new per-unit cost of production?

Input
Quantity

Real
GDP

300.00

$400

225.00

300

150.00

200

1. What is the level of productivity in this economy

(a) 400/300=1.33 answer

Per unit cost = (price of input unit x input quantity) / real GDP

For the values above,

per unit cost = ($5 x 330) / $400 =$4.12

Assume that the input price increases from $5 to $6 with no accompanying change in productivity. What is the new per-unit cost of production?

The new per unit cost = ($6 x 300) / $400 =$4.5

This would cause firms to raise prices at every level of output (higher input cost), thus the aggregate supply schedule would shift left.

This would cause output to decrease and prices to rise in short-run.

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