describe how adding a risk-free security to modern portfolio theory allows investors to do better than the efficient frontier. A
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Based on the total cost, total revenue, and pair of shoes, the profit level at every level of running shoe production are:
- Pair 1 - $23
- Pair 2 - $51
- Par 3 -$80
- Pair 4 - $109
- Pair 5 - $137
The profit can be found as:
= Total revenue - Total cost
At first level:
= Total revenue - total cost
= 30 - 7
= $23
At pair 2:
= Total revenue - total cost
= 60 - 9
= $51
At pair 3:
= Total revenue - total cost
= 90 - 10
= $80
At pair 4:
= Total revenue - total cost
= 120 - 11
= $109
At pair 5:
= Total revenue - total cost
= 150 - 13
= $137
The total profit is increasing because the total revenue is increasing significantly yet the total cost is only increasing marginally.
In conclusion, the profit is increasing more because cost is increasing less.
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