Problem: Answer the given questions on the basis of this information for a single firm: total Cost of capital = $1000; price paid for labor = $12 per labor unit; price paid for raw materials = $4 per raw-material unit.
Q1. Suppose the firm can produce 5000 units of out put by combining its fixed capital with 100 units of labor and 450 units of raw materials. What are the total cost and average total cost of producing the 5000 units of output?
Q2. Now assume the firm improves its production process so that it can produce 6000 units of out put by combining its fixed capital with 100 units of labor and 450 units of raw materials. What are the total cost and average cost of producing the 6000 units of output?
Q3. Refer to your answers to Ba and 8 and explain how process innovation can improve economic efficiency.