This question relates to how firms choose between different technologies to produce a given amount of output. a) Explain what it means to say that technology A dominates technology B? (2 marks) b) Consider firm X that can choose between two technologies, A and B, that both produce 200m of cloth using different combinations of labour and coal as represented in the table below: Technology Number of workers Coal required (tonnes)

workers coal(tones)

A 8 4

B 2 12

Assume that the Wage = $10 and cost of coal = $30 per tonne (ii) Calculate the total cost of each technology given the cost of the inputs. (2 marks) (ii) Which technology will firm X choose? (1 mark) c) Explain the concept captured by the isocost line for technology A in this particular scenario. (1 mark) d) Graph the isocost lines for technology A and B. On the horizontal axis place the number of workers and the vertical axis, tonnes of coal. Clearly identify each technology and the relevant axis intercept points. (5 marks) e) Lets assume there is an increase in the price of labour $30 and a decrease in the price of coal to $5 per tonne. (i) Calculate the total cost of each technology given the new cost of the inputs. (2 marks) (ii) Which is the least cost technology now? (1 mark) f) What is the economic rent from adopting the new technology? Include the definition of economic rent in your answer. (3 marks) d) If there are many firms like firm X in the market for cloth, what will happen to those firms that continue to use technology A and those that switch to technology B? How does this relate to the idea of creative destruction? (3 marks)