With current technology, suppose a firm is producing 800 loaves of banana bread

Question

With current technology, suppose a firm is producing 800 loaves of banana bread daily. Also assume that the least-cost combination of resources in producing those loaves is 5 units of labor, 7 units of land, 2 units of capital, and 1 unit of entrepreneurial ability, selling at prices of $40, $60, $60, and $20, respectively. Assume the firm can sell these 800 loaves at $1 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?

Explanation / Answer

Labour 5 40=200
Land 7       60=420
Capital 2       60=120
entrepreneurial ability 1       20=20
so TC=200+420+120+20=760
TR=800*1=800
TC=760
Profit=800-460=40
since they are making a profit they will continue to produce, and other firms will flow resources towards this product to make a share of the profits (until the higher quantity drives the price down to cost)

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