Question

Suppose that real domestic output in an economy is 2400 units, the quantity of inputs is 60, and the price of each input is $30. 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:

Per-unit production costs would decrease.

Explanation:

Real domestic output in an economy is 2400 units.

The quantity of inputs is 60, and the price of each input is $30.

Total cost of producing 2400 units

= $60 \ \times\ 30$

= 1,800

Per unit cost of producing 2400 units

= $\frac{1,800}{2,400}$

= 0.75

Total cost of producing 3000 units

= $60 \ \times\ 30$

= 1,800

Per unit cost of producing 3000 units

= $\frac{1800}{3,000}$

= 0.6

If productivity increased such that 3000 units are now produced with the quantity of inputs still equal to 60, per unit production cost will decrease.