Exhibit 11-12

-In Exhibit 11-12,the price of rubber is $110 per pound.To maximize profit,the widget producer should buy and use:

Question

Exhibit 11-12
 
-In Exhibit 11-12,the price of rubber is $110 per pound.To maximize profit,the widget producer should buy and use:

Quizplus · Accepted Answer

To maximize profit, the producer should aim for the highest marginal revenue to marginal cost ratio. Looking at Exhibit 11-12, we see that the marginal revenue for each widget sold is $300. The marginal cost of producing each widget can be calculated by dividing the price of rubber by the quantity used in each widget. Therefore, the marginal cost of producing one widget with one pound of rubber is $110, for two pounds of rubber it is $55 per widget, for three pounds it is $36.67 per widget, for four pounds it is $27.50 per widget, and for five pounds it is $22 per widget.

The highest marginal revenue to marginal cost ratio is achieved when the marginal cost is equal to the marginal revenue, which occurs at 2 pounds of rubber. Therefore, the widget producer should buy and use 2 pounds of rubber to maximize profit.

Exhibit 11-12 -In Exhibit 11-12,the Price of Rubber Is $110 Per Pound.To