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Answer the questions on the basis of the following information. Support your answer by showing your calculations.
A B C D
Labor 1 2 3 4
Capital 5 3 2 1
Suppose 50 units of product X can be produced by employing just labor and capital according to the four techniques (A, B, C, and D) shown below. Assume the prices of labor and capital are $5 and $4, respectively.
1) If the price of product X is $1, what economic profit the the firm will realize by choosing the least costly technique?
2) Now assume that the price of labor falls to $3 and the price of capital rises to $5. Which technique is economically most efficient in producing product X?
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