00:01
So assume that a business firm finds its profit is greatest when it produces $40 watts of products.
00:08
So that's when its product is the profit is greatest.
00:15
So it produces 40 watts of product and he has the greatest profit.
00:27
Now the first question, oh that's product a.
00:32
Suppose also that each of the three techniques shown in the table to the right, to produce the desired outputs.
00:38
Now the first question says, would the resources, prices shown which technique will the firm choose why? will production using that technique entail profit or loss? what will be the amount of that profit or loss? and will the industry expand or contract? when would that expansion or contraction end? so we're going to start with the first question, which is, so basically giving a table that shows the price per unit, or resources, the techniques, the technique one, two, three, and the labor, land capital, and entrepreneurial ability.
01:18
So we're just going to be finding the cost using each technique as part of the question.
01:25
So the cost with technique one is going to be equals to three multiplied by five plus four multiplied by two plus two multiplied by two plus two multiplied by four.
01:45
And this is equal to $35.
01:50
Now the cost with technique 2 is equal to 3 multiplied by 2 plus 4 multiplied by 4 plus 2 multiplied by 2.
02:10
And this is equal to $34.
02:14
Now the cost with technique 3 is 3 multiplied by 3 plus 4 plus 4 multiplied by 2.
02:27
By 2 plus 2 multiply by 5 plus 2 multiply by 4 and this is equals to 35 dollars so since the cost of producing 40 worth of product a is minimum is minimum with the technique 2 because it is 34 dollars so the profits will be greatest with this technique so technique 2 as the greatest profits because he has the lowest cost so now they'll business firm would choose technic 2 for producing a, for producing product a, and production using technic 2 went until a profit since the total revenue is greater than the total cost.
03:20
So that means it's as a profit.
03:23
So now the total cost is $34 per unit output for technic 2, and the total revenue is $40, right, per unit of our unit, outputs.
03:42
So the profits per unit of output, profit per unit of output is equal to the total revenue minus the total cost, which is $40 minus $34.
04:07
And this is equal to $6.
04:08
So the firm will make a profit of $6, right? now the profits will lead to a move of resources to the industry.
04:18
So the industry will expand.
04:27
Industry expand because profits will lead to a move of resources now the expansion of the industry will continue to the total revenue becomes equal to the total cost so expansion will continue until the total revenue is equal to the total cost because when you have your revenue greater than your total cost definitely going to have more profit and more profit leads to more expansion so you to continue to expand until your total revenue is now equal to your total cost so now next question assume now that a new technique technique four is developed and it combines two units of labor so it combines two units of labor two units of land and six units of capital and three units of entrepreneurial ability.
05:51
In the view of resources prices in the table, we do the firm adopt this new technique and explain your answers.
05:57
So the cost of technique four would be 3 multiplied by 2 plus 4 multiplied by 2 plus 2 multiplied by 6 plus 2 multiplied by 3.
06:15
And this is equal to $32.
06:18
So the firm will adopt this new technique because the firm will have a larger per profit unit of $8 .00...