With current technology, suppose a firm is producing 800 loaves of banana bread daily. Also assume that the least-cost combination of resources in producing those loaves is 5 units of labor, 5 units of land, 4 units of capital, and 1 unit of entrepreneurial ability, selling at prices of $40, $60, $60, and $20 per unit, respectively. a. If the firm can sell these 800 units at $1 per unit, will it continue to produce banana bread?
b. What is the firm's total revenue?
c. What is the firm's total cost?
d. What is the firm's profit or loss?

a. Since a profit of $40 is being made as obtained in part d, the firm will continue to produce banana bread.

b. Firm's total revenue is $800.

c. Firm's total cost is $760.

d. Firm's profit is $40.

Explanation:

a. If the firm can sell these 800 units at $1 per unit, will it continue to produce banana bread?

The decision criteria is to continue to produce if profit is being made or stop to produce if loss is being incured.

Since a profit of $40 is being made as obtained in part d, the firm will continue to produce banana bread.

b. What is the firm's total revenue?

Total revenue = Selling price per unit * Sales unit = $1 * 800 = $800

c. What is the firm's total cost?

This can be calculated as follows:

Cost of labor = Unit of labor * Unit labor cost = 5 * $40 = $200

Cost of land = Unit of land * Unit land cost = 5 * $60 = $300

Cost of capital = Unit of capital * Unit capital cost = 4 * $60 = $240

Cost of entrepreneurial ability = Unit of entrepreneurial ability * Unit entrepreneurial ability cost = 1 * $20 = $20

Total cost = Cost of labor + Cost of land + Cost of capital + Cost of entrepreneurial ability = $200 + $300 + $240 + $20 = $760

d. What is the firm's profit or loss?

Profit (loss) = Total revenue - Total cost = $800 - $760 = $40

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