An economy is employing 2 units of capital,5 units of raw materials,and 8 units of labour to produce its total output of 640 units.Each unit of capital costs $10,each unit of raw materials,$4,and each unit of labour,$3.
-Refer to the above information.If the per unit price of raw materials rises from $4 to $8 and all else remains constant,the per unit cost of production will rise by about:
A) 100 percent.
B) 50 percent.
C) 40 percent.
D) 30 percent.

Question

Quizplus · Accepted Answer

The per unit cost of raw materials rises from $4 to $8, an increase of $4 per unit. The total cost of raw materials used in production is 5 units * $4 = $20. The increase in the cost of raw materials is therefore $4 * 5 = $20. The total cost of production is $10 * 2 + $4 * 5 + $3 * 8 = $64. The increase in the cost of production is therefore $20 / $64 * 100 = 31.25%.

An Economy Is Employing 2 Units of Capital,5 Units of Raw