Suppose a firm can produce 70 units of a product, Zenia, 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, land at $3 per unit, capital at $6 per unit, and entrepreneurship at $9 per unit. Refer to the above table. If the price of labor declines from $3 to $2 per unit, then what is the least costly way of producing Zenias?
A) A
B) B
C) C
D) D

Question

Suppose a firm can produce 70 units of a product, Zenia, 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, land at $3 per unit, capital at $6 per unit, and entrepreneurship at $9 per unit.  Refer to the above table. If the price of labor declines from $3 to $2 per unit, then what is the least costly way of producing Zenias?
A) A 
B) B 
C) C 
D) D

Quizplus · Accepted Answer

To determine the least costly way of producing Zenias, we need to calculate the total cost of each technique. With the original prices, the total costs for each technique are:
A= $630
B= $570
C= $690
D= $770

If the price of labor declines from $3 to $2 per unit, the new total costs for each technique are:
A= $560
B= $540
C= $660
D= $740

Therefore, the best choice is Technique B, as it has the lowest total cost of $540.

Suppose a Firm Can Produce 70 Units of a Product