Question 2a (i)_ A snowboard company currently hires 10 skilled employees who are paid a weekly wage $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) Choose... Explain. Choose... Choose.. Price equal MC No Question 2a (ii) Price less than MC What core principles should be considered in the sno Yes making Price greater than MC
Answer:
Yes, the company should produce and sell the 241st snowboard.
Explanation:
A company keeps producing to the point where Marginal cost is equal to marginal revenue (price). In this case, the marginal revenue of producing the 241st snowboard is $550 and the marginal cost is $500. Since the marginal cost is less the company will produce and sell the output.
Calculation of marginal cost:
The marginal cost of 241st snowboard = Total cost of producing 241 snowboards - Total cost of producing 240 snowboards
The total cost of producing 240 snowboards
Total cost =Fixed cost + Variable cost
Fixed cost = $3000 (cost of capital)
Total cost = 3,000 +10,000=13,000
The marginal cost of 241st snowboard = 13,500 (given) - 13,000 (as calculated above)
= $500
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