Table 2.1 contains information on three techniques for producing $15 worth of bar soap. Assume $15 worth of bar soap means the selling price of

Table 2.1 contains information on three techniques for producing $15 worth of bar soap. Assume €œ$15 worth of bar soap€ means the selling price of soap is $3 per bar and all three techniques produce 5 bars of soap ($15 = $3 per bar x 5 bars). So you know each technique produces 5 bars of soap.

a. What technique will you want to use if the price of a bar of soap falls to $2.75? What if the price of a bar of soap rises to $4? To $5?

b. How many bars of soap will you want to produce if the price of a bar of soap falls to $2.00?

c. Suppose that the price of soap is again $3 per bar but that the prices of all four resources are now $1 per unit. Which is now the least-profitable technique?

d. If the resource prices return to their original levels (the ones shown in the table), but a new technique is invented that can produce 3 bars of soap (yes, 3 bars, not 5 bars!) using 1 unit of each of the four resources, will firms prefer the new technique?

TABLE 2.1 Three Technlques for Producing $15 Worth of Bar Soap Units of Resource Technique 2 Units Price per Unit of Resource Technique 1 Technique 3 Cost Resource Units Cost Cost Units Labor Land 2 3 $2 4 2 Capital Entrepreneurial ability Total cost of $15 worth of bar soap 3 3 $15 $13 $15