Question
A famous construction company has the necessary resource capable of construction buildings and roads. A careful engineering estimate reveals that, in a year, the company
A famous construction company has the necessary resource capable of construction buildings and roads. A careful engineering estimate reveals that, in a year, the company has the possibility of producing the following combinations of buildings and roads basing on the amount of resources held.
Output | Combinations | |
A | B | |
4 Bedroom houses | 12 | 0 |
Roads (in km) | 0 | 60 |
Further analysis reveals that, while the cost of constructing one house is Tsh.62 million, the cost of constructing a road is Tsh. 30 million per km. on the other hand, while the selling value of one house is Tsh. 105 millioni, payments for constructing a road is Tsh. 48 millioni per kilometer.
- Determine the opportunity cost of constructing a 4 bedroom house in terms of road kilometers.
- Determine the opportunity cost of constructing one road kilometer in terms of 4 bedroom houses.
- If you are to provide an economic advice to the company, which combination would you advice the company to opt?. Give reasons for your answer.
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