-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?
Definitions:
Business Entity Assumption
An accounting principle that treats a business as an independent entity separate from its owners for accounting and legal purposes.
Business's Assets
Resources owned by a company that have economic value and can be used to meet debts, commitments, or legacies.
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