Question

With current technology, suppose a firm is producing 400 loaves of banana bread daily. Also assume that the least-cost combination of resources in producing those loaves is 10 units of labor, 7 units of land, 2 units of capital, and 3 units of entrepreneurial ability, selling at prices of $20, $60, $60, and $20, respectively. Assume the firm can sell these 400 loaves at $2 per unit. Instructions: Enter your answers as whole numbers. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. a. What is the firm's total revenue? b. What is its total cost? c.Calculate the amount of economic profit or loss. d. Will it continue to produce banana bread? e. If this firm's situation is typical for the other makers of banana bread, will resources flow toward or away from this bakery good? Next

Answer 1

Solution:

a. What is the firm's total revenue?

Multiply the sales price by either the number of units sold to determine overall revenue.

The total income amounts to 2 dollars (price) and 400 more (bread loaves sold).

Therefore, the total income is $800.

b. What is its total cost?

Multiply increasing variable usage (the number of units used) by input price and add both values together to measure total costs.

Total cost equals 10 × $20 (cost of labor) + 7 × $60 (cost of land) + 4 × $40 (cost of capital) + 3 × $20 (cost of entrepreneurial ability) = $840.

c.Calculate the amount of economic profit or loss.

For this operation, benefit / loss is equal to total revenue less overall cost. In this case, profit / loss is equivalent to $800 (total income) minus $840.

If the total income equals the total cost, the corporation will profit; but, if the total cost exceeds the total income, the company will have a loss.

d. Will it continue to produce banana bread?

The company will keep producing banana bread if it receives fine, with zero economic profit.

However, the firm can stop producing banana bread if it loses money (when its total cost equals its total revenue).

e. If this firm's situation is typical for the other makers of banana bread, will resources flow toward or away from this bakery good?

If the product has contributed in a positive way, other businesses or individuals are going to want to make banana bread. Therefore, resources are going to pour into this good bakery. With the economic loss, money must disburse this pastry commodity, when companies or individuals would leave the market so that the loss could not be prevented. When economic profit is negative, no change occurs, as no new companies enter the market, no companies leave. There is no change.