Answer
The firm will choose Technique 2, because it requires the least money overall to produce product A. The technique will entail a profit of \$6. The industry will expand, as the firm is making a profit. It will continue to expand until the marginal benefit of producing the good is equal to its marginal cost, which should be when the cost of producing A is equal to \$40.
Work Step by Step
The amount of money it would take to produce A with each technique can be found by multiplying each of the resource units consumed by their price, and then adding all of the prices.
For Technique 1, this comes out to \$35: $(3\times5)+(4\times2)+(2\times2)+(2\times4)$.
For Technique 2, it comes out to \$34: $(3\times2)+(4\times4)+(2\times4)+(2\times2)$.
For Technique 3, it also comes out to \$35: $(3\times3)+(4\times2)+(2\times5)+(2\times4)$.
Out of all of these, the option that has the lowest manufacturing costs is Technique 2. Because the firm has found that its profit is greatest when producing \$40 of A, the profit can be found by subtracting \$36 from \$40, which leaves \$6.
The industry will expand because the firm is making a profit. When the marginal benefit of producing A is equal to the marginal cost, the firm will stop expanding. In this case, that will be when the cost of producing A is \$40, because the information at the beginning of the question stated that the firm found that its profit was greatest when it produced \$40 worth of the product.
