Question

Assuming the optimal labor-capital mix had been used, determine annual pre-tax profits economics

Option 1: Profits decrease due to excessive use of labor.
Option 2: Profits increase with an optimal labor-capital mix.
Option 3: Profits remain constant regardless of labor-capital mix.
Option 4: Profits are unrelated to economic factors.

Answer 1

The best production method is Method 1, which has the lowest total cost when considering the cost of labor and capital. If the cost of labor rises to $200/unit, the total costs should be recalculated to find the new best method.

Step-by-step explanation:

The best production method can be determined by considering the cost of labor and capital. Method 1 uses 50 units of labor and 10 units of capital, Method 2 uses 20 units of labor and 40 units of capital, and Method 3 uses 10 units of labor and 70 units of capital.

If the cost of labor is $100/unit and the cost of capital is $400/unit, we can calculate the total cost for each method and compare them. Method 1: Total cost = (50 * $100) + (10 * $400) = $5,000 + $4,000 = $9,000. Method 2: Total cost = (20 * $100) + (40 * $400) = $2,000 + $16,000 = $18,000. Method 3: Total cost = (10 * $100) + (70 * $400) = $1,000 + $28,000 = $29,000.

From these calculations, it is clear that Method 1 is the best production method as it has the lowest total cost. If the cost of labor rises to $200/unit, we can repeat the calculations to find the new total costs for each method and determine the best method.