Asked by Miriam Petit on Jun 01, 2024
Verified
Refer to Table 8.4. Assuming the price of capital (K) is $10 per unit and the price of labor (L) is $5 per unit, the firm will use production technique ________ to produce ________ of output.
A) A; all three units
B) B; all three units
C) B; the first two units of output and production technique A to produce the third unit
D) A; the first unit and production technique B to produce the second and third units
Production Technique
Methods and processes used in the conversion of inputs into outputs in the production of goods or services.
Price of Capital
The cost of using capital goods in production, which can include interest, depreciation, and other expenses related to the acquisition and use of capital assets.
Units of Output
The quantity of goods or services produced by a company, individual, or industry.
- Acknowledge the impact that choosing production strategies has on expense and efficiency levels.
Verified Answer
JF
juliana fernandezJun 01, 2024
Final Answer :
C
Explanation :
To determine the most cost-effective production technique for each level of output, we calculate the total cost of inputs (capital K and labor L) for each technique at each output level, using the given prices ($10 per unit of K and $5 per unit of L). For 1 unit of output, Technique B ($2K*10 + 6L*5 = $50) is cheaper than Technique A ($4K*10 + 4L*5 = $60). For 2 units of output, Technique B ($4K*10 + 10L*5 = $90) is cheaper than Technique A ($7K*10 + 6L*5 = $100). However, for 3 units of output, Technique A ($8K*10 + 6L*5 = $110) becomes cheaper than Technique B ($6K*10 + 11L*5 = $115). Therefore, the firm will use Technique B for the first two units of output and Technique A for the third unit.
Learning Objectives
- Acknowledge the impact that choosing production strategies has on expense and efficiency levels.