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.
92) Refer to the above information. The per unit cost of production in this economy is:
A) $1.00.
B) $.10.
C) $.05.
D) $.50.

93) 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.

94) 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:

A) The correct answer is B. The per unit cost of production in this economy is $0.10.

B) The correct answer is B. The per unit cost of production will rise by about 30 percent.

C) The correct answer is B. The demand curve would shift to the right.

Explanation:

Since an economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units, and each unit of capital costs $ 10, each unit of raw materials, $ 4, and each unit of labor, $ 3, to determine the per unit cost of production in this economy, the per unit cost of production if the per unit price of raw materials rises from $ 4 to $ 8 and all else remains constant, and to determine how the demand or aggregate supply curve will respond, the following calculations must be made:

A) 2 x 10 + 5 x 4 + 8 x 3 = 20 + 20 + 24 = 64

64 / 640 = 0.10

B) 2 x 10 + 5 x 8 + 8 x 3 = 20 + 40 + 24 = 84

64 = 100

84 = X

84 x 100 / 64 = X

8400 / 64 = X

131.25 = X