Big Oaks can produce either paper products or lumber with each tree that they harvest. Because Big Oaks can adjust the amo paper products and lumber they produce from the harvested trees, paper products and lumber are produced in variable prop The above table summarizes Big Oaks production possibilities from each harvested tree.
-Refer to the table above. If the profit for each unit of paper product is $3.00 and the profit for each unit of lumber is $13.50, what is Big Oaks' marginal cost of producing between points C and D on their production possibilities frontier?
A)$3.75
B)$9.25
C)$7.50
D)$2.50

Question

Big Oaks can produce either paper products or lumber with each tree that they harvest. Because Big Oaks can adjust the amo paper products and lumber they produce from the harvested trees, paper products and lumber are produced in variable prop The above table summarizes Big Oaks production possibilities from each harvested tree.
-Refer to the table above. If the profit for each unit of paper product is $3.00 and the profit for each unit of lumber is $13.50, what is Big Oaks' marginal cost of producing between points C and D on their production possibilities frontier?
A)$3.75 
B)$9.25 
C)$7.50 
D)$2.50

Quizplus · Accepted Answer

The marginal cost of producing between points C and D can be calculated by the opportunity cost of moving from C to D. At point C, Big Oaks produces 4 units of paper and 15 units of lumber. At point D, they produce 5 units of paper and 14 units of lumber. Thus, to produce one more unit of paper (going from 4 to 5), they give up producing 1 unit of lumber. The profit lost by not producing that unit of lumber is $13.50 (the profit per unit of lumber). Since they gain one unit of paper, which brings in $3.00, the net cost is $13.50 - $3.00 = $10.50. However, this cost is for the production shift overall, not per unit of paper. Since only one unit of paper is involved, the calculation remains straightforward. The error in my explanation is in the final interpretation of the calculation. The correct approach to find the marginal cost is to look at the opportunity cost in terms of the profit forgone ($13.50 for the lumber) for the additional unit of paper, without subtracting the profit of the paper, as the question asks for the marginal cost, not the net change in profit.

Big Oaks Can Produce Either Paper Products or Lumber with Each