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Worked Problems
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1
ResourcePrice per Unit of ResourceResources Required
  Technique 1Technique 2Technique 3
  UnitsUnitsUnits
Land$ 2223
Labour$ 4321
Capital$ 3123
Entrepreneurial Ability$ 5111
Suppose there are three techniques for producing 1 wool blanket, as shown in the table above.
  1. With the resource prices shown, which production technique will the firm use? Why?
  2. Suppose the firm can sell blankets for $26 each. Will the firm be profitable?
  3. Assume a new technique is developed that economizes on the relatively expensive labour. It requires 2 units of land, one unit of labour, 3 units of capital, and 1 unit of entrepreneurial ability. Will the firm adopt this new technique?
  4. Suppose the firm's cost of capital rises to $5, all other values being the same. Which technique will the firm now choose?






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