Questions: With current technology, suppose a firm is producing 800 loaves of banana bread daily. Also assume that the least-cost combination of resources for producing those loaves is 6 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, respectively. Assume the firm can sell these 800 loaves at 1 per unit. What is the firm's total revenue? What is its total cost? Calculate the amount of economic profit or loss. Will it continue to produce banana bread? If this firm's situation is typical for the other makers of banana bread, will resources flow toward or away from this bakery good?

To solve the problem, we need to calculate the firm's total revenue, total cost, and economic profit or loss. Let's go through each step:

1. Total Revenue:

   • The firm sells 800 loaves of banana bread at $1 per loaf.
   • Total Revenue = Price per loaf × Number of loaves = $1 × 800 = $800.

2. Total Cost:

   • The cost of resources is given as follows:
     • Labor: 6 units at $40 per unit = 6 × $40 = $240
     • Land: 5 units at $60 per unit = 5 × $60 = $300
     • Capital: 4 units at $60 per unit = 4 × $60 = $240
     • Entrepreneurial ability: 1 unit at $20 per unit = 1 × $20 = $20
   • Total Cost = $240 (Labor) + $300 (Land) + $240 (Capital) + $20 (Entrepreneurial ability) = $800.

3. Economic Profit or Loss:

   • Economic Profit or Loss = Total Revenue - Total Cost = $800 - $800 = $0.

4. Will it continue to produce banana bread?

   • Since the economic profit is $0, the firm is breaking even. Typically, a firm will continue to produce if it covers its total costs, including opportunity costs, which is the case here.

5. If this firm's situation is typical for the other makers of banana bread, will resources flow toward or away from this bakery good?

   • Since the firm is only breaking even (earning zero economic profit), there is no incentive for resources to flow toward or away from this bakery good. Resources will likely remain stable unless other factors change.

Summary:

• Total Revenue: $800
• Total Cost: $800
• Economic Profit or Loss: $0
• Will it continue to produce banana bread? Yes
• Will resources flow toward or away from this bakery good? Resources will remain stable.