Teresa makes sweaters in her home. Starting with just some knitting needles and yarn, she was able to knit 50 sweaters per year. Now some local stores have expressed interest in her designs and...

Teresa makes sweaters in her home. Starting with just some knitting needles and yarn, she was able to knit 50 sweaters per year. Now some local stores have expressed interest in her designs and offered to buy her sweaters for $20 each. This makes it worthwhile for her to invest in some capital; in particular, she could produce many more sweaters if she invested in one or more looms, as shown in the following table. Assume that Teresa’s sweater business is a perfectly competitive firm.

Extracted text: Teresa makes sweaters in her home. Starting with just some knitting needles and yarn, she was able to knit 50 sweaters per year. Now some local stores have expressed interest in her designs and offered to buy her sweaters for $20 each. This makes it worthwhile for her to invest in some capital; in particular, she could produce many more sweaters if she invested in one or more looms, as shown in the following table. Assume that Teresa's sweater business is a perfectly competitive firm. Complete the following table by calculating the marginal physical product (MPP) of each loom and the marginal revenue product (MRP) of each loom. Quantity of Input Output MPP of Each Loom MRP of Each Loom (Looms) (Sweaters per year) (Sweaters) (Dollars) 50 1. 90 2. 121 3 144 4. 161 176 If the rental price of a loom is $320 per year, Teresa should use Suppose the demand for sweaters is very elastic, while the demand for cigarettes is very inelastic. Suppose that looms are used exclusively in the production of sweaters and that tobacco is used exclusively in the production of cigarettes. Which of the following might we expect? O The demand for looms would be more elastic than the demand for tobacco. O The supply of looms would be less elastic than the supply of tobacco. O The demand for looms would be less elastic than the demand for tobacco. O The supply of looms would be more elastic than the supply of tobacco.