The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each for a total revenue of $18. If the price of labor increases from $2 to $3, then the results of using Technique C will change from an economic
A) loss of $2 to a loss of $1.
B) profit of $2 to a profit of $1.
C) profit of $1 to a profit of $2.
D) loss of $1 to a loss of $2.

Question

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each for a total revenue of $18. If the price of labor increases from $2 to $3, then the results of using Technique C will change from an economic
A) loss of $2 to a loss of $1. 
B) profit of $2 to a profit of $1. 
C) profit of $1 to a profit of $2. 
D) loss of $1 to a loss of $2.

Quizplus · Accepted Answer

According to the table, Technique B generates the highest profit ($2) with a total cost of production of $16. The revenue generated from selling 18 widgets at $1 each is $18. Therefore, the profit would be $2.
If the price of labor increases from $2 to $3, the cost of production for Technique B would increase to $22 (from $16) and the profit would decrease to $18 - $22 = -$4. Thus, Technique B would not be the best choice in this scenario.
Technique A and Technique C both generate a profit of $1. With a price increase for labor, Technique A will result in a loss of $1 since the cost of production will increase to $19. Technique C, however, will still generate a profit of $1 even with a price increase in labor. Therefore, Technique C is the best choice since it has the lowest cost of production ($17) and will still generate a profit of $1 even with a price increase in labor.

The Following Table Illustrates Alternative Production Techniques for Producing 18