Chapter 12, Problem 1FT

Subpart (a):

To determine

Comparing low profit and high profit industry.

Explanation of Solution

If low profit industry (L) and high profit industry (H) has similar cost, the price charged is different in both industries. The profit is higher in industry “H”, thus the price charge in high profit industry is higher than in low profit industry.

Economics Concept Introduction

Concept introduction:

Profit: Profit refers to the excess revenue after subtracting the total cost from the total revenue

Subpart (b):

To determine

Comparing low profit and high profit industry.

Explanation of Solution

Comparing the value of output in both industries, it is higher in industry H than L.

Subpart (c):

To determine

Comparing low profit and high profit industry.

Explanation of Solution

If the labor and capital are moved from L industry to H, it will give up the low valued goods and gained high valued goods.

Subpart (d):

To determine

Comparing low profit and high profit industry.

Explanation of Solution

The cost of production in is different in both industries. High profit industry has low cost and low profit industry has high cost, because generally high profit industries are technologically advanced, thus they need less cost to produce goods. This is exactly differing in low profit industries, they are already running in low profit and it is difficult for them to adopt new low cost technological production methods.

Subpart (e):

To determine

Comparing low profit and high profit industry.

Explanation of Solution

If the cost of production is low in industry H, they require lower amount of capital and labor than industry L.

Subpart (f):

To determine

Comparing low profit and high profit industry.

Explanation of Solution

If the capital and labor are shift from low profit industry L to high profit industry H, there is small unit of output are given up in L than are gained in industry H.