refer to the following:
A publishing company has a production line that can print two types of magazines, MachoMan and RealLove. The production line runs 24 hours a day and the firm is currently allocating 10 hours a day to publishing MachoMan and 14 hours a day to RealLove. Marginal product is 20 for both magazines, the last issue to MachoMan added $2 to total revenue, and the last issue to RealLove added $3 to total revenue.
-If the firm allocates 15 hours a day to RealLove and 9 hours to MachoMan instead;
A) total revenue will decrease $1
B) total revenue will decrease $40
C) total revenue will increase $1
D) total revenue will increase $20
E) total revenue will increase $60

Question

Quizplus · Accepted Answer

The marginal product (MP) for both magazines is 20, meaning each hour of production adds 20 units of the magazine. Initially, the firm allocates 10 hours to MachoMan and 14 hours to RealLove. The marginal revenue (MR) for MachoMan is $2, and for RealLove, it's $3. By reallocating time to 9 hours for MachoMan and 15 hours for RealLove, the firm loses 20 units of MachoMan (1 hour * 20 MP) but gains 20 units of RealLove (1 hour * 20 MP). The net change in revenue is a loss of $40 from MachoMan (20 units * $2) and a gain of $60 from RealLove (20 units * $3), leading to a net increase of $20 in total revenue.

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