Answer the question on the basis of the following information: Suppose 30 units of product A can be produced by employing just labor and capital in the four ways shown below.Assume the prices of labor and capital are $2 and $3 respectively. $\quad $$\quad $$\quad $$\quad $$\underline{\text { Production Techniques: }}$
$\begin{array}{c}
\begin{array}{lll}
\
\text { Labor}\
\text { Capital}
\end{array}
\begin{array}{c}
1\
\hline 4 \
2
\end{array}
\begin{array}{c}
II \
\hline 3 \
3
\end{array}
\begin{array}{c}
III\
\hline2 \
5
\end{array}
\begin{array}{c}
IV \
\hline 5 \
1
\end{array}
\end{array}$
Refer to the information.If the price of product A is $0.50,the firm will realize:
A) an economic profit of $4.
B) an economic profit of $2.
C) an economic profit of $6.
D) a loss of $3.

Question

Answer the question on the basis of the following information: Suppose 30 units of product A can be produced by employing just labor and capital in the four ways shown below.Assume the prices of labor and capital are $2 and $3 respectively. $\quad $$\quad $$\quad $$\quad $$\underline{\text { Production Techniques: }}$ 
$\begin{array}{c}
\begin{array}{lll}
\
\text {  Labor}\
\text {  Capital} 
\end{array}
\begin{array}{c}
1\
\hline 4 \
2
\end{array}
\begin{array}{c}
II  \
\hline 3 \
3 
\end{array}
\begin{array}{c}
III\
\hline2 \
5
\end{array}
\begin{array}{c}
 IV \
\hline 5 \
1 
\end{array} 
\end{array}$
  Refer to the information.If the price of product A is $0.50,the firm will realize:
A) an economic profit of $4.
B) an economic profit of $2.
C) an economic profit of $6.
D) a loss of $3.

Quizplus · Accepted Answer

To find the economic profit, we need to calculate the total revenue and the total cost. The total revenue from producing 30 units of product A at a price of $0.50 is:
Total Revenue = Price x Quantity = $0.50 x 30 = $15
To calculate the total cost using each production technique, we need to calculate the total cost of labor and the total cost of capital separately, and then add them up. 
For technique I: 
Total Cost of Labor = Price of Labor x Units of Labor = $2 x 4 = $8
Total Cost of Capital = Price of Capital x Units of Capital = $3 x 2 = $6
Total Cost = Total Cost of Labor + Total Cost of Capital = $8 + $6 = $14
For technique II: 
Total Cost of Labor = Price of Labor x Units of Labor = $2 x 3 = $6
Total Cost of Capital = Price of Capital x Units of Capital = $3 x 3 = $9
Total Cost = Total Cost of Labor + Total Cost of Capital = $6 + $9 = $15
For technique III: 
Total Cost of Labor = Price of Labor x Units of Labor = $2 x 2 = $4
Total Cost of Capital = Price of Capital x Units of Capital = $3 x 5 = $15
Total Cost = Total Cost of Labor + Total Cost of Capital = $4 + $15 = $19
For technique IV: 
Total Cost of Labor = Price of Labor x Units of Labor = $2 x 5 = $10
Total Cost of Capital = Price of Capital x Units of Capital = $3 x 1 = $3
Total Cost = Total Cost of Labor + Total Cost of Capital = $10 + $3 = $13
From the above calculations, we can see that technique I has the lowest cost, which is $14. Therefore, the firm will choose technique I to produce product A. The economic profit will be:
Economic Profit = Total Revenue - Total Cost = $15 - $14 = $1
However, this is not one of the answer choices. But we can see that technique II has a total cost of $15, which is equal to the total revenue. In this case, the firm will break even, and there is no economic profit or loss. If we consider this as the minimum requirement for the firm, then it would be acceptable to choose technique II. In this case, the economic profit would be zero. 
Thus, the best choice(s) are:
B) technique II, with a zero economic profit

Answer the Question on the Basis of the Following Information \quad

Answer the Question on the Basis of the Following Information $\quad$