Question

Suppose that an economy produces 2400 units of output, employing the 60 units of input, and the price of the input is $30 per unit. Refer to the information above. If productivity increased such that 3000 units are now produced with the quantity of inputs still equal to 60, then per-unit production costs would:

Answer 1

Answer:

The answer is: The per unit production cost would be $48

Explanation:

If productivity increased by 25% so now 3000 units are being produced with the same input (60 units) then the per unit production cost will be:

         3,000 / 2,400 = $60 / X

         3,000X = (2,400 x $60) = $144,000

         X = 144,000 / 3000 = $48

If productivity increases, then the per unit production cost decreases.