Question

Suppose there are three techniques for producing TV sets, as shown in the following table:

Resource Price per Unit of Resource
Resources Required Technique 1 Technique 2 Technique 3 Units Units Units Land P200 2 2 3 Labour P400 3 2 1 Capital P300 1 2 3 Entrepreneurial Ability P500 1 1 1


b. Assume a new technique is developed that economizes on the relatively expensive labour. It requires 2 units of land, 1 unit of labour, 3 units of capital, and 1 unit of entrepreneurial ability. Should the firm adopt this new technique?   

Answer 1

First of All we find the Cost of each technique by multiplying price per unit of resource to amount of resources employed.

=>Technique 1 :- (200*2)+(400*3)+(300*1)+(500*1) = 400+1200+300+500 = 2400

=>technique 2:- (200*2)+(400*2)+(300*2)+(500*1) = 400+800+600+500 = 2300

=>Technique 3 :- (200*3)+(400*1)+(300*3)+(500*1) = 600+400+900+500 = 2400

=> now suppose new technique developed then it's cost would be:- (200*2)+(400*1)+(300*3)+(500*1) = 400+400+300+500 = 1600. so here the Cost of new technique is least from All given technique so yes! the firm should adopt this new technique which is minimize it's cost.