21 Jul WHICH IS NOW THE LEAST-PROFITABLE TECHNIQUE?
The table below contains information on three techniques for producing $22.50 worth of bar soap. Ass Show more The table below contains information on three techniques for producing $22.50 worth of bar soap. Assume $22.50 worth of bar soap means the selling price of soap is $4.50 per bar and all three techniques produce 5 bars of soap ($22.50 = $4.50 per bar 5 bars). So you know each technique produces 5 bars of soap. Resource Units Cost Units Cost Units Cost Labor $2 4 $8 2 $4 1 $2 Land 1 1 1 3 3 4 4 Capital 3 1 3 1 3 2 6 Entreprenuerrial ability 3 1 3 1 3 1 3 Total cost of $15 worth of bar of soap $15 $13 $15 Tech 1 Tech 2 Tech 3 A. What technique will you want to use if the price of a bar of soap falls to $4.25? What if the price of a bar of soap rises to $5.75? What if the price of a bar of soap rises to $6.75? B. How many bars of soap will you want to produce if the price of a bar of soap falls to $1.60? Zero: It is not profitable to produce bars of soap at this selling price or Five: It is profitable to produce bars of soap at this selling price C. Suppose that the price of soap is again $4.50 per bar but that the cost of all four resources are now $1.7 per unit. Which is now the least-profitable technique? D. If the resource prices return to their original levels (the ones shown in the table) but a new technique is invented that can produce 2 bars of soap using 1 unit of each of the four resources will firms prefer the new technique? Show less
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