Question

Clem Oatley could grow wheat and barley. He could grow 75 bushels of wheat or 125 bushels of barley using the same resources on an acre of his land. The price of wheat is $2.00 per bushel and the price of barley $ 0.80. What should he specialize in

Answer 1

Answer:

Clem should specialise in wheat production because he has higher profits there

Explanation:

Clem needs to make a decision on the product that will maximise his profits and not just the number of units of products he can manufacture.

If he produces only wheat he will have profit of 75 bushels * $2 = $150

If he produces only barley his profit will be 125 bushels * $0.80 = $100

This shows that wheat is more profitable for Clem. Even though he can produce more units of barley.

Answer 2

Answer: Wheat

Explanation:

If Clem produced only wheat he would have;

= 75 * 2

= $150

If he instead produced only barley he would have;

= 125 * 0.80

= $100

Clem should therefore specialize in wheat as it would bring in more returns.