Custom Furniture Manufactures a Small Table and a Large Table

question 60

Multiple Choice

Custom Furniture manufactures a small table and a large table.The small table sells for $800,has variable costs of $570 per table and takes ten direct labour hours to manufacture.The large table sells for $1600,has variable costs of $960 and takes eight direct labour hours to manufacture.The company has a maximum of 5000 direct labour hours per month when operating at full capacity.If there are no constraints on sales of either product and the company could choose any proportions of product mix that they wanted,what is the optimum product mix to maximise operating profit of the company?

• A) 625 units of small, 500 units of large
• B) Zero units of small, 625 units of large
• C) 500 units of small, zero units of large
• D) 500 units of small, 625 units of large

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Definitions:

Demand Function

A mathematical formula expressing the amount of a product that consumers are ready and able to purchase at various prices, highlighting the price-demand relationship.

Marginal Cost

Refers to the increase or decrease in the total cost that will result from producing one more or one less unit of a product.

Pumpkins

A large, round, orange fruit with a thick rind, typically harvested in the fall and used both for food (such as in pies) and as decoration (such as jack-o'-lanterns).

Constant Marginal Cost

A situation in which the cost to produce one additional unit of output remains unchanged, regardless of the level of production.