ptouticing. 49. Answer the question using the following data, which show all ava

Question

ptouticing. 49. Answer the question using the following data, which show all available techniques for producing 20 units of a particular commodity ossible production Resource prices#1 2 3 #4 #5 3 Resource echniques and Labor $4 2 4 Entrepreneurial Ability If a new production technique is developed that enables a firm to produce 20 units of output with 3 units of land, 3 of labor, 1 of capital, and 2 of entrepreneurial ability, this technique would A. not be adopted because, although it reduces production costs, it does not increase profit. B. be adopted because it would lower production costs and increase economic profit. C. not be adopted because it entails higher production costs than other available techniques. D. be adopted, even though economic profits would be reduced slightly 50. Answer the question on the basis of the following information: Suppose 30 units of product A can be produced by employ ing just labor and capital in the four ways shown below. Assume the prices of labor and capital are $2 and $3, respectively. roduction Techniques: 4 3 Capital Which technique is economically most efficient in producing A? A. I D. IV

Explanation / Answer

49).

Consider the given problem here there are “4 factors” of production these are “Land”, “labor”, “capital” and “entrepreneurial ability”. Now, price of each input is given in the question.

So, given the price and the cost adopting “technique 1” is given by.

=> C1 = 4*2 + 3*1 + 3*5 + 2*3 = 32 = C1.

Similarly, given the price and the cost adopting “technique 2” is given by.

=> C2 = 4*4 + 3*2 + 3*2 + 2*1 = 30 = C2.

Similarly, given the price and the cost adopting “technique 3” is given by.

=> C3 = 4*2 + 3*4 + 3*3 + 2*1 = 31 = C3.

Now, given the price and the cost adopting “technique 4” is given by.

=> C4 = 4*4 + 3*1 + 3*1 + 2*4 = 30 = C4.

Finally, given the price and the cost adopting “technique 5” is given by.

=> C5 = 4*4 + 3*3 + 3*2 + 2*1 = 33 = C5.

So, here the most efficient technique is “2 and 4” having least cost.

Now, for new technology the cost of using it is given by.

=> 4*3 + 3*3 + 3*1 + 2*2 = 28 < 30. So, here the technology having least cost compare to “2 and 4”, => “B” be the correct answer.

50).

Now, let’s assume there are two factor of production “labor” and “capital”. Now, the price of “labor” and “capital” are given by, “$2” and “$3”. So, the cost of using technique “1” is given by.

=> C1 = 2*4 + 3*2 = 14 = C1.

Similarly, the cost of using “technique 2” is given by.

=> C2 = 2*3 + 3*3 = 15 = C2 .

Similarly, the cost of using “technique 3” is given by.

=> C3 = 2*2 + 3*5 = 19 = C3.

Finally, the cost of using “technique 4” is given by.

=> C4 = 2*5 + 3*1 = 13 = C4.

So, if we compare all the costs then the least possible cost is given by “13” by “technique 4”.

So, here the optimum answer is “D”.

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