Question

1. The three economic standards for choosing the best alternative are minimize input, maximize output, and maximize the difference between output and input Determine the appropriate economic standard for each of the following situations and explain the reason for choosing each economic standard. (15 pts) i. A manufacturer of steel rings can sell all the rings at a fixed selling price. As a result of increasing the production, the unit costs increase as the manufacturer should pay for the overtime. What should the manufacturer's criterion be? The engineering school held a raffle of a car with tickets selling for 50¢ each or three for $1. When the students were selling tickets, they noted that many people had trouble deciding whether to buy one or three tickets. What was the 11. buyer's criterion? ii. A book publisher is about to set the list price (retail price) on a textbook. The choice of a low list price would mean less advertising than would be used for a higher list price. The amount of advertising will affect the number of copies sold. Which economic standard the publisher should choose? 2. The sale department of Company A has found that selling price per unit has the following relationship with number of units sold per year P $45.00 0.04Q where P =selling price per unit Q quantity sold per year On the other hand, the management of Company A has found that the cost of manufacturing has the following relation ship with the number of units sold per year C $5.00Q + $9200 where C-cost to produce and sell Q per year What quantity should the company produce and sell each year to gain the maximurm profit? (25 pts)

Answer 1

1)maximizing the difference between the input and output.

2)minimize the input.

3)minimize the input.

Explanation:

The available three options are minimizing input, maximize output, and maximize the difference between output and input.

1) The manufacturer of steel rings can sell all the rings at a fixed selling price. At the same time, the per unit cost of production also increases. Thus the manufactures's focus should be in increase the profit by maximizing the difference between the input and output.

This is because, when the firm follow this criterion, it maximizes the difference between the total revenue and total costs.

2)

From the buyer's point of view, the aim is to pay the lowest price for the goods they are purchasing. Thus the buyer's criteria should be to minimize the input.

3)

The book publisher aim is to minimize the sale. He can sale more copies at a low price only if the cost which he has incurred in the publishing of the book is less. Thus the criteria for the book publisher should be to minimize the input.