LanaTech Produces Three Products, X, Y, and Z, from Recycled

question 50

Short Answer

LanaTech produces three products, X, Y, and Z, from recycled paper.Budgeted data for next month follows: $\begin{array}{lrrr}&X&Y&Z\\\text { Units produced }&800&2,400&1,600\\\hline \text { Sales value at split-off per unit } & \$ 6 & \$ 15 & \$ 12 \\\text { Additional processing costs per unit } & \$ 1 & \$ 4 & \$ 5 \\\text { Joint production costs per unit } & \$ 2 & \$ 6 & \$ 4 \\\text { Sales value if processed further per unit } & \$ 9 & \$ 20 & \$ 16\end{array}$ The joint cost of the recycled paper is $110,000.Which of the products should be produced beyond the split-off point? $\quad\underline{X} \quad\quad \underline{Y} \quad\quad \underline{Z}$
A. $\text { No } \quad \text { Yes } \quad \text { Yes }$
B. $\text { Yes } \quad \text { Yes\quad No }$
C. $\text { No } \quad \text { No } \quad \text { No }$
D. $\text { No \quad Yes \quad No }$

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Definitions:

Homothetic Preferences

A consumer preference structure in which utility functions display constant returns to scale, meaning relative consumption patterns do not change as income levels change.

Substitution Effect

The change in consumption patterns due to a change in relative prices of goods, leading individuals to substitute cheaper goods for more expensive ones.

Compensated Demand Function

A demand function that adjusts for changes in income to show how quantities demanded by consumers change in response to a price change while keeping utility constant.

Adequately Paid

Compensation that meets or exceeds the value of the work performed or the qualifications of the individual.