Suppose a Factory Can Be Designed to Produce Either Trucks

question 88

Essay

Suppose a factory can be designed to produce either trucks or cars. The figure above shows the marginal cost and marginal benefit of producing trucks in terms of the forgone cars.
a) What is the marginal benefit of the 25th truck?
b) What is the marginal cost of the 25th truck?
c) Should the 25th truck be produced? Why or why not.
d) What is the marginal benefit of the 75th truck?
e) What is the marginal cost of the 75th truck?
f) Should the 75th truck be produced? Why or why not?
g) What is the allocatively efficient quantity of trucks?
$\begin{array}{|lr|lr|}\hline \text { China'sproduction }&&\text { Pakistan'sproduction }\\\text { in } 1 \text { day }&&\text { in } 1 \text { day }\\\hline \text { Cloth } & 8 & \text { Cloth } & 4 \\\text { Cheese } & 16 & \text { Cheese } & 12 \\\hline\end{array}$

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Definitions:

Chi-Square Distribution

A statistical distribution used to assess the goodness-of-fit between observed and expected frequencies.

Degrees of Freedom

The number of independent pieces of information available to estimate another parameter.

Expected Frequencies

The anticipated count of occurrences across different categories based on probability distributions in statistics.

Chi-Square Value

A statistical measure used in tests of independence and goodness of fit, indicating how expectations compare to actual observed data.