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Fact 17.5.1
The Burning Belly Taco Stand is considering buying some new special ovens.Each oven will cost $1,000,and will last for 2 years before it wears out.The ovens will be used to make the Taco Stands famous "Burning Ring of Fire" tacos,and will generate a value of marginal product of $600 for the first oven,$570 for the second oven,and $530 for the third oven.(Assume all revenues are earned at the end of the year. )
-Consider Fact 17.5.1.If the rate of interest is 10 percent,how many ovens will the Burning Belly Taco Stand buy?

Question

Quizplus · Accepted Answer

The Burning Belly Taco Stand should buy one oven since the value of marginal product ($600) for the first oven is greater than the cost of the oven ($1,000). For the second oven, the value of marginal product ($570) is less than the cost of the oven, meaning the Burning Belly Taco Stand would lose money by purchasing a second oven. Therefore, the optimal choice is to purchase one oven.

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