Question

Macrame and Me is a craft company specializing in exotic yarn, thread, and specialty products for...

Macrame and Me is a craft company specializing in exotic yarn, thread, and specialty products for knitting, needlepoint, and macrame. One of its most popular products is yarn made out of the hair of the Himalayan yak. Since Himalayan yak are hard to locate in the mountains (and frankly can be a bit grumpy when they are sheared), gathering the yak hair to spin into yarn is both time-consuming and dangerous. Macrame and Me pays an intrepid group of local yak trackers $17 per bushel to find and gather the hair.

Part 1)

Last year the price of a roll of this highly sought-after yak yarn was $74. Macrame and Me produced 30 rolls using 27 bushels of yak hair. This year the price of a roll of yak yarn jumped $10, to $84. In response, Macrame and Me produced 40 rolls using 31 bushels of hair.
Based on these data, calculate the answers to the following four scenarios. You should enter your answers to the nearest dollar.

Scenario A: How much profit did Macrame and Me make last year?    $   

Scenario B: How much profit did Macrame and Me make this year?    $   

Scenario C: How much profit could Macrame and Me have made last year if they used the production plan from this year?    $   

Scenario D: How much profit could Macrame and Me have made this year if it used the production plan from last year? $

Part 2)

Based on comparisons of these four scenarios, is Macrame and Me behaving according to the Weak Axiom of Profit Maximization (WAPM)? (Yes/No)

  

Which of the following comparisons justifies your answer to the WAPM question above?

Choose one or more:

A.This year's actual profit > last year's actual profit.

B.This year's actual profit > this year's potential profit.

C.This year's potential profit > last year's potential profit.

D.Last year's potential profit > last year's actual profit.

Homework Answers

Answer #1

Part 1 (Macrame & Me)
Scenario A : Profit made last year(Actual) = revenue from sale of rolls - Cost of gathering bushels = ( 74 * 30 ) - ( 27 * 17 ) = $1761

Scenario B : Profit made this year(Actual) = revenue from sale of rolls - Cost of gathering bushels = ( 84 * 40 ) - ( 31 * 17 ) = $2833

Scenario C : Profit that could be made last year(with this year's production plan) = revenue from sale of rolls - Cost of gathering bushels(Potential profit last year)
  = (40*74)-(31*17) = $2433

Scenario D : Profit that could be made this year(with last year's production plan) = revenue from sale of rolls - Cost of gathering bushels(Potential profit this year)
=(30*84)-(27*17) = $2061

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