Question

The Alpine House Inc is a large retailer of snow skis. The company assembled the information shown below for the quarter ende March 31: $ Sales Selling price per pair of skis Variable selling expense per pair of skis Variable administrative expense per pair of skis Total fixed selling expense Total fixed administrative expense Beginning merchandise inventory Ending merchandise inventory Merchandise purchases Amount $150,000 750 50 10 $ 20,000 $ 20,000 $ 30,000 $ 40,000 $100,000 Required

Answer 1

The question involves the economic concepts of comparative advantage and opportunity cost within the production possibilities of a large retailer, Alpine Sports. It examines the shifts in production of skis to snowboards among the company's three plants and the resulting changes in output.

Step-by-step explanation:

The question is centered around the concept of production possibilities and opportunity cost in the context of a large retailer, Alpine Sports, which specializes in the production of both snowboards and skis. The scenario describes how the company allocates resources among its three plants to maximize output according to the principle of comparative advantage. Considering the initial situation at point A on the combined production possibilities curve, the company produces 350 pairs of skis per month and no snowboards. The question details the shifts in production and opportunity costs as the company begins to produce snowboards at Plant 3, which has the lowest opportunity cost for snowboard production, indicating a comparative advantage in snowboard production at this plant.

The response to this question would require using the information provided to explain the trade-offs and resulting changes in the output of skis and snowboards as Alpine Sports shifts production among its plants. This demonstrates the economic concepts of comparative advantage and opportunity cost within the framework of a production possibilities curve. It also shows how a large retailer adjusts production in response to its different capabilities across multiple facilities. The example provided follows the law of increasing opportunity cost as Alpine Sports moves from producing only skis to including snowboards in its production mix.

One specific note: when Alpine Sports decides to produce snowboards at Plant 3, it can produce 100 snowboards per month with a reduction of ski production by 50 pairs (point B). This is due to the purchase amount of resources reallocated from ski production to snowboard production at Plant 3, illustrating the concept of opportunity cost.