Banner Tools Produces Two Styles of Steel Hammers with Wooden

question 47

Multiple Choice

Banner Tools produces two styles of steel hammers with wooden handles.The first sells for $6 and consists of .5 pounds of steel; the second sells for $15 and consists of 1 pound of steel.Since steel costs the firm $4 per pound and the handle, labor, and packaging costs amount to $1 for either hammer, the profits coefficients are $6 - .5($4) - $1 = $3 for the smaller hammer and $15 - 1($4) - $1 = $10 for the larger hammer.Thus the objective function for this model is MAX 3X₁ + 10X₂.Given that the shadow price for steel is $2, which of the following statements is correct?

• A)Banner should not buy more steel.
• B)Banner should buy all the steel it can only if it can purchase it for less than $2 per pound.
• C)Banner should buy at least as much as the "ALLOWABLE INCREASE", but only if it can be purchased for less than $2 per pound.
• D)Banner should buy at least as much as the "ALLOWABLE INCREASE", but only if it can be purchase for less than $6 per pound.

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Definitions:

Consumer Surplus

The gap between the total sum consumers are ready and able to spend for a good or service and the actual amount they pay.

Demand Curve

A graph showing the relationship between the price of a good and the quantity demanded, typically downward sloping to the right, reflecting the inverse relationship between price and quantity demanded.

Market Price

The current price at which an asset or service can be bought or sold in a competitive marketplace.

Firm's Willingness

The inclination or readiness of a business to take certain actions, such as producing a certain quantity of goods or setting a certain price, based on economic motivations.