Question 2a (1). A snowboard company currently hires 10 skilled employees who are paid a weekly wage of $1,000. The cost of capital is $3,000 and it is fixed, which means that it does not vary with output. The company is currently producing 240 snowboards. The company's cost will be $13,500 if it produces an additional snowboard. A customer is willing to pay $550 for the 241st snowboard. Should the company produce and sell it? (YES/NO) Price greater than MC Choose. Price greater than MC Price less than MC Price equal MC Explain. No Question 2a (ii) Yes
Question 2a (1). A snowboard company currently hires 10 skilled employees who are paid a weekly wage of $1,000. The cost of capital is $3,000 and it is fixed, which means that it does not vary with output. The company is currently producing 240 snowboards. The company's cost will be $13,500 if it produces an additional snowboard. A customer is willing to pay $550 for the 241st snowboard. Should the company produce and sell it? (YES/NO) Price greater than MC Choose. Price greater than MC Price less than MC Price equal MC Explain. No Question 2a (ii) Yes
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Question 2a (i).
A snowboard company currently hires 10 skilled employees who are paid a weekly wage of $1,000. The cost of
capital is $3,000 and it is fixed, which means that it does not vary with output. The company is currently
producing 240 snowboards. The company's cost will be $13,500 if it produces an additional snowboard. A
customer is willing to pay $550 for the 241st snowboard.
Should the company produce and sell it? (YES/NO) Price greater than MC +
Choose.
Price greater than MC
Price less than MC
Explain.
Price equal MC
No
Question 2a (ii)
Yes
Expert Solution
Step 1
Given,
Total fixed cost = TFC = $3000
Variable cost= VC = $1000
Number of employees (L) =10
So,
When the company is producing 240 snowboards, the total cost of producing those units is
TC = TFC + TVC
TC = TFC + VC *L
TC = 3,000 + 1000 (10)
TC = $13,000
If the company produce 1 more snowboard, the total cost incurred of producing 241 snowboards is
TC’ = $13500
So, to produce one more snowboard, the additional cost incurred by the company is
MC = TC’- TC
MC = 13500- 13000
MC = $500
The price that the customer is willing to pay for 241st snowboard is,
P = $550
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