With current technology, suppose a firm is producing 400 loaves of bread daily. Assume that the least cost combination of resources in producing those loaves is $180 ( 5 units of labour $ 40, 7 units of land $ 60, 2 units of capital $ 60 and 1 unit of entrepreneurial ability $ 20)
1. If the firm can sell those 400 loaves for $ 2 per unit, will it continue to produce bread?
2. If this firm’s situation is typical for the other makers of bread, will resources flow into or away from this bakery good?
I have determined that per unit cost is $ 0.45 and that leaves revenue (profit ) of $ 1.55) per unit.