with cheaper machine hours, one would expect a shift in the direction of more machines and less labor.

Labor Cost

Machine Cost

Total Cost

Cost of technology 1 10 × $40 = $400 2 × $55 = $110 $510

Cost of technology 2 7 × $40 = $280

4 × $55 = $220 $500

Cost of technology 3 3 × $40 = $120

7 × $55 = $385 $505

The firm should choose production technology 2 since it has the lowest total cost. Because the cost of

machines increased (relative to the previous question), you would expect a shift toward less capital and

more labor.

8. This is the situation that existed in the United States in the 1970s. Since there is only demand enough for

2.5 firms to reach the bottom of the average cost curve, you would expect one firm will not be around in the

long run, and at least one firm will be struggling.

Chapter 8

1. No, you would not raise the price. Your product is exactly the same as the product of the many other firms
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