Question

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. The per unit cost of production in this economy is:
A) $1.00.
B) $.10.
C) $.05.
D) $.50.

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) 50 percent.
B) 30 percent.
C) 40 percent.
D) 100 percent.

Refer to the above information. As a result of the change indicated in the previous question, the aggregate:
A) supply curve would shift to the right.
B) demand curve would shift to the right.
C) demand curve would shift to the left.
D) supply curve would shift to the left.

Answer 1

Answer:

Explanation:

1. To find the cost per unit of production, first we find the total cost. So we multiply the unit of each factor used times its cost.

capital: 2*$10=$20

raw materials: 5*$4=$20

labour: 8*$3=$24

Total cost: $20+$20+$24=$64

Then we divide the total cost over the total units produced:

Cost per unit: $64/640=$0,1 Answer is B

2. If the cost per unit of raw materials increases from $4 to 8$. Then the total cost of production will be:

capital: 2*$10=$20

raw materials: 5*$8=$40

labour: 8*$3=$24

Total cost: $20+$40+$24=$84

To find how much the cost per unit will rise, to find how much it rises

64$→100%

$84←x

x=($84*100%)/$64=131.2%

131.2%-100=31.2%. The answer is B

3. Because there is a change in raw materials, then there would be changes in the supply demand.  In this case, the total cost and the cost per unit increased, then it is a negative shock to the supply demand. This is represented as a shift to the left. The answer is D