Firm A can produce a unit of output with 10 hours of labor and 5 units of material. Firm B can produce a unit of output with 5 hours of labor and 10 units of material. Firm C can produce a unit of output with 10 hours of labor and 10 units of material. If the prices of labor and material are $10 per hour and $5 per unit, respectively, which of these firms is economically efficient?
A) firm A only
B) firm B only
C) firm C only
D) Firms A and B could both be economically efficient.

Question

Quizplus · Accepted Answer

Firm B has the lowest total cost of production at $100 per unit ($50 for labor and $50 for materials), compared to Firm A's $125 and Firm C's $150.

Firm a Can Produce a Unit of Output with 10