Question

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4.

The per unit cost of production in the economy described above is:
A) $0.50.
B) $1.
C) $2.
D) $5.

Answer 1

To calculate the per unit cost of production, divide the total cost ($40) by the number of units produced (20), which results in a per unit cost of $2.

Step-by-step explanation:

The per unit cost of production in the economy described is calculated by dividing the total costs by the quantity of output produced. Total costs are obtained by multiplying the quantity of inputs used by the price per input. In this case, we have 10 inputs for $4 each, yielding a total cost of $40. Since the real domestic output is 20 units, we divide the total cost ($40) by the number of units (20) to find the per-unit cost.

Per unit cost = Total cost / Quantity of output
Per unit cost = $40 / 20
Per unit cost = $2

Hence, the correct answer is C) $2.