Question

Question 1. A snowboard company currently hires 10 skilled employees who are paid a weekly wage of $1000. The cost of capital $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? Explain. What core principles should be considered in the snowboard company's decision making? (i) Scarcity, choice, and opportunity cost (ii) Cost-benefit analysis (iii) Incentive principle (iv) Diminishing returns

Question 2. Timothy quits his job, which pays $60,000 a year, to enrol in a 2-year graduate program. His annual school expenses are $60,000 for tuition, $8,000 for books, and $1,400 for food. What is his opportunity cost of attending the graduate program? What core principles are considered in Timothy's decision making? (i) Scarcity, choice, opportunity cost (ii) Cost-benefit analysis (iii) Incentive principle (iv) Diminishing returns

Answer 1

Answer 1. Cost benefit analysis.

Yes the company should produce and sell another snowboard. The cost of producing 240 snowboard is $13500, addtional cost of producing 241st snowboard is $13500-$13000=$500.

Addional benefit from selling 241st snowboard=$550.

Since benefit>Cost, company should sell it.

Answer 2. scarcity, choice and opportunity cost

Opportunity cost of attending college= $60000+$60000+$8000= $128000

Food will be consumed irrespective of whether Timothy joins college or not.