Magnitude Company Produces a and B with Contribution Margins Per

question 20

Multiple Choice

Magnitude Company produces A and B with contribution margins per unit of $40 and $30, respectively. Only 500 labor hours and 300 machine hours are available for production. Time requirements to produce one unit of A and B are as follows:
What is the constraint on machine hours for Magnitude Company?

• A) 1A + 4B £ 300
• B) 5A + 2B £ 500
• C) 1A + 4B £ 500
• D) 40A + 30B £ 500

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Definitions:

Consumer Surplus

The shortfall between the total consumers are willing to contribute towards a good or service and the actual contribution.

Tax

A mandatory financial charge or a type of levy imposed upon a taxpayer by a governmental organization in order to fund government spending and various public expenditures.

Producer Surplus

The difference between what producers are willing to sell a good for and the actual price they receive, representing a measure of producer welfare.

Consumer Surplus

The difference between what consumers are willing to pay for a good or service and what they actually pay, reflecting the economic benefit to consumers.