Macroeconomics + Economy 2009 Update 18th Edition by Campbell McConnell, Sean Masaki Flynn,Stanley Brue

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Assume that a business firm finds that its profit it greatest when it produces $40 worth of product A. Suppose also that each of the three techniques shown in the table on page 43 will produce the desired output.

a. With, the resource prices shown, which technique will the firm choose Why Will production entail profit or losses What will be the amount of profit or loss Will the industry expand or contract When will that expansion end
b. Assume now that a new technique, technique 4, is developed. It combines 2 units of labor, 2 of land, 6 of capital, and 3 of entrepreneurial ability. In view of the resource prices in the table, will the firm adopt the new technique Explain your answer.
c. Suppose that an increase in labor supply causes the price of labor to fall to $1.50 per unit, all other resource prices being unchanged. Which technique will the producer now choose Explain.
d. "The market system causes the economy to conserve most in the use of those resources that are particularly scarce in supply. Resources that are scarcest relative to the demand for them have the highest prices. As a result, producers use these resources as sparingly as is possible." Evaluate this statement. Does your answer to part c, above, bear out this contention Explain.