1.The following shows different technologies for producing 100 metres of cloth.

Technology Number of workers Coal required (tonnes)

A 5 2

B 7 3

C 3 4

D 4 6

E 2 7

F 8 5

a)Show the different technologies on a graph with the number of workers on the horizontal axis and tonnes of coal on the vertical axis. (2 marks)

b)Which technologies would not be chosen by firms?Explain. Now you can cross out these technologies from the table and not use them for the rest of the questions. (1 mark)

c)Of the remaining technologies, what determines the technology a firm would choose? (1 mark)

d)Assuming the wage is $7, and the cost of coal is $7 per tonne, calculate the total cost of different technologies for producing 100 metres of cloth. What is least cost technology/technologies? Sketch the isocost lines for these input prices on a graph representing technologies. (2 marks)

e)Now assume the wage increases to $14 and the cost of coal is $7 per tonne, calculate the total cost of different technologies for producing 100 metres of cloth. What is least cost technology?Sketch the isocost lines for the new input prices on a new graph representing technologies. (1 mark)

f)What is the economic rent (or benefits to firms) from adopting the new technology when the wage increases from $7 to $14? Include the definition of economic rent in your answer. (2 marks)

g)What is creative destruction? How would this idea apply to the situation in e) and f)? (2 marks)