3. Suppose that a firm can produce 100 units of product X by combining labor, land, capital, and
entrepreneurial ability using three different methods. If it can hire labor at $2 per unit, land at $3 per
unit, capital at $5 per unit, and entrepreneurship at $10 per unit, and if the amounts of the resources
required by the three methods of producing 100 units of product X are as indicated in the table,
answer the following questions.
Method
Resource
1
2
3
Labor
8
13
10
Land
4
3
3
Capital
4
2
4
Entrepreneurship
1
1
1
a. Which method is the least expensive way of producing 100 units of X?
b. If X sells for 70 cents per unit, what is the economic profit of the firm? $
c. If the price of labor should rise from $2 to $3 per unit and if the price of X is 70 cents, (1) the
firm's use of labor would change from
to
land would change from
to
capital would change from
to
entrepreneurship would not change
