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 6 units of labor, 5 units of land, 4 units of capital, and 2 units of entrepreneurial ability, selling at prices of $40, $60, $60, and $20, respectively.

Required:
1. Assume the firm can sell these 800 loaves at $1 per unit, will it continue to produce banana bread?2. What is the firm's total revenue?3. What is the firm's total cost?4. What is the firm's profit or loss?

Answer 1

1. No

2. $800

3. 820

4. Loss = $-20

Step-by-step explanation:

Total revenue = price x quantity = 800 x $1 = $800

Total cost = ( 6 x $40) + (5 × $60) + (4 × $60) + (2 × $20) = $820

Profit / loss = Total revenue - Total cost

$800 - $820 = $-20

Because the firm is earning a loss, the firm would not continue to produce.

I hope my answer helps you.