Answer
Total revenue is 800. Total cost is 760. It makes a profit and will continue to produce banana bread. Resources should flow toward this bakery good.
Work Step by Step
Revenue is calculated by multiplying quantity by price it sells for: in this case, 400 * 2 is a revenue of 800 dollars. The costs are all of the factors of production added together. 5 units of labor at $40$ per unit is $200$. 7 units of land at $60$ per unit is $420$. 2 units of capital at $60$ per unit is $120$ and 1 unit of entrepreneurial ability at $20$ per unit is $20$. Adding those costs together: 200+420+120+20= 760 dollars in costs. Profit is revenue minus costs. 800-740= 60, and since the company makes profit, it will continue to produce banana bread and other resources will flow into the bakery good since it is a profitable industry.
