Consider a small firm that is producing winter coats. It can lease an additional sewing machine for one month for $1200. With this additional machine, the firm can produce an additional 7 coats during that time period that it sells for $250 each. Hiring the marginal machine adds to the firm's profit and so it should _ the machine.
A) $1200; lease
B) - $1200; not lease
C) $550; lease
D) $1750; lease
E) $0; be indifferent as to whether to lease

Question

Quizplus · Accepted Answer

The additional revenue from selling 7 coats at $250 each is $1750. Subtracting the cost of leasing the machine ($1200) gives a profit of $550. Therefore, the firm should lease the machine.

Consider a Small Firm That Is Producing Winter Coats