If 1 unit of land and labor are used to make bread (costing a total of $10), while 1 unit of land and 2 units of labor are used to make wine (costing a total of $12), then:
A)the price of labor is $2 and the price of land is $8.
B)the price of land is $2 and the price of labor is $8.
C)the price of each final good is $11.
D)labor will continue to move into wine production until the price of wine declines to $10.
E)no correct numerical answer is stated above.

Question

Quizplus · Accepted Answer

Let L be the price of labor and A be the price of land. Then, from the given information, we have:
1L + 1A = 10  (for bread)
2L + 1A = 12  (for wine)
Subtracting the first equation from the second, we get:
L = 2
Substituting this value of L into the first equation, we get:
A = 8
Therefore, the price of labor is $2 and the price of land is $8, which is option A.

If 1 Unit of Land and Labor Are Used to Make