2) A production possibilities for two products, tables and chairs, is found belo
ID: 2439808 • Letter: 2
Question
2) A production possibilities for two products, tables and chairs, is found below. Usual assumptions regarding production possibilities are implied. Assume that the price of a table is $400 and price of a chair is $50.
Combination
Tables
Chairs
A
0
30
B
1
29
C
2
24
D
3
18
E
4
10
F
5
0
The opportunity cost of producing 3rd table is: ____________________________
The marginal benefit of 3rd table is __________________________
The marginal cost of 3rd table is __________________________
The marginal benefit of producing 19th chair is: _______________________________
The marginal cost of producing 30th chair is: _______________________________
Determine the optimal combination using marginal analysis of tables? Use the blank column for calculations. No need to use all the columns.
Combination
Tables
Marginal benefit of a table
Marginal cost of a table
A
0
B
1st
C
2nd
D
3rd
E
4th
F
5th
Combination
Tables
Chairs
A
0
30
B
1
29
C
2
24
D
3
18
E
4
10
F
5
0
Explanation / Answer
Opportunity cost of 3rd table is the lost number of chairs which is (24 - 18) = 6 chairs
Marginal benefit of producing 3rd table is the revenue received from the 3rd table which is $400.
Marginal cost of producing 3rd table is the amount of opportunity cost which is 6 x 50 = $300
The marginal benefit of producing 19th chair is its price which is $50
The marginal cost of producing 30th chair is the amount of its opportunity cost which is the cost of 1 table at $400.
Fill all the cells of the marginal benefit column (from B onwards and 0 for A) with $400 because it is the price of each table. In the marginal cost column, the value of chairs sacrificed is to be filled. This implies for B, C, D, E, and F the values are 1*50 = 50, 5*50 = 250, 6*50 = 300, 8*50 = 400, 10*50 = 500
Since marginal benefit = marginal cost = $400 for the 4th chair, optimal combination is shown by E where tables are 4 and chairs are 10.
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