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olya-2409 [2.1K]
3 years ago
12

Answer the question using the following data, which show all available techniques for producing 20 units of a particular commodi

ty Resource Resource prices Possible production Techniques #1 #2 #3 #4 #5 Land $4 2 4 2 4 4 Labor 3 1 2 4 1 3 Capital 3 5 2 3 1 2 Entrepreneurial Ability 2 3 1 1 4 1 If a new production technique is developed that enables a firm to produce 20 units of output with 3 units of land, 3 of labor, 1 of capital, and 2 of entrepreneurial ability, this technique would
Business
1 answer:
Nana76 [90]3 years ago
5 0

Answer:

This technique would be adopted because it would lower production costs and increase economic profit.

Explanation:

Consider the given problem here there are “4 factors” of production these are “Land”, “labor”, “capital” and “entrepreneurial ability”. Now, price of each input is given in the question.

given the price and the cost adopting “technique 1” is given by.

=> C1 = 4*2 + 3*1 + 3*5 + 2*3

         = 32

Similarly, given the price and the cost adopting “technique 2” is given by.

=> C2 = 4*4 + 3*2 + 3*2 + 2*1

          = 30  

Similarly, given the price and the cost adopting “technique 3” is given by.

=> C3 = 4*2 + 3*4 + 3*3 + 2*1

          = 31  

Now, given the price and the cost adopting “technique 4” is given by.

=> C4 = 4*4 + 3*1 + 3*1 + 2*4

          = 30

Finally, given the price and the cost adopting “technique 5” is given by.

=> C5 = 4*4 + 3*3 + 3*2 + 2*1

         = 33  

here the most efficient technique is “2 and 4” having least cost.

Now, for new technology the cost of using it is given by.

=> 4*3 + 3*3 + 3*1 + 2*2 = 28 < 30

Therefore, This technique would be adopted because it would lower production costs and increase economic profit.

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The price that Quality Craft Rentals should charge per rental is $35.57.

Data and Calculations:

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Canoe maintenance  $ 3,100       $61,200 ($9 x 6,800)             $64,300

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Annual depreciation  ($27,000/10)                                                2,700

Total annual costs                                                                   $208,520

Before-tax return on assets                                                         33,363

Total costs + returns                                                               $241,883

Total rentals per year                                                                   6,800

Price to charge per rental                        ($241,883/6,800)  $35.57

Thus, the price per rental of $35.57 would ensure that Quality Craft Rentals makes an annual 16% <em>before-tax return on assets</em> using life-cycle costs.

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