Final answer:
The firm's accounting profit is $50,000. Producing five units leads to a loss due to the marginal cost exceeding the price. The most cost-effective production method depends on the cost of labor and capital, with Method 3 being preferable at lower labor costs, and Method 2 at higher labor costs.
Step-by-step explanation:
The first question pertains to the accounting profit of a firm. To calculate it, we take the total sales revenue and subtract the costs incurred in labor, capital, and materials. In this case, the company had sales revenue of $1 million, and various costs amounting to $950,000. The accounting profit is therefore $50,000.
The second question asks about the production decisions of a firm at various output levels. At five units, with revenue of $125 and costs of $130, the firm is experiencing a loss of $5. This suggests that producing five units is not profitable, as the marginal cost of $30 for the fifth unit exceeds the price of $25, resulting in a loss of $5 per unit at that output level.
The third question is about the cost of production methods using different combinations of labor and capital. Calculating the cost for each method gives us a clear idea of which is the most cost-effective. With labor at $100/unit and capital at $400/unit, Method 3 is the least expensive. However, if the cost of labor rises to $200/unit, Method 2 becomes the most cost-effective.