Basil wishes to start a landscaping company selling plants a

Basil wishes to start a landscaping company, selling plants and landscaping services to new residents of New England Manor, a subdivision that is developing south of Tampa, Florida.

A. What types of resources are available for the firm to hire? Give examples of each type of resource.

B. How are the prices of the resources determined?

C. Basil can employ several workers to dig the necessary holes and ditches on his clients\' land or purchase a single specialized back-hoe and hire only one operator to dig these holes and ditches. Explain how he should make his decision.

D. How is the \"product flow\" from Basil\'s company converted to the \"money flow\" in the Circular Flow Model.

Solution

a. The types of resources that are available for the firm to hire are :

1) Human resource : Labour

2) Land which is required for operating the business

3) Capital: It is the money that is required for any business to start and function properly

b. The prices of the resources depend on the demand and supply of the resource. The prices are set at the point where the demand equals the supply. This is true for all the resources.

c. Basil should make a decision based on the marginal cost of digging a hole in each case. Whichever method\'s marginal cost is lower, the should by Basil\'s decision.

d. In the circular flow model, the product flow describes the resources that households provide to the business in the form of labour, capital etc. and the final products that the firm finally provides to the consumer households. The money flow is related to the product flow. The firm recieves the money from households for the products it delivers to the households and then the firm pays to the households for the resources that firms used like wages.