1 Using optimization theory in Chapter 3 please comment on t

1. Using optimization theory in Chapter 3, please comment on the following quotation:

“If Congress cuts out the NASA space station, we will have wasted all the resources that we have already spent on it. Therefore, we must continue funding it.”

2. Newspaper and soft drink are priced almost the same around $1 per unit by vending machines. Given the same unit price (value), how come a newspaper vending machine can be opened easily (i.e. take as many as you want) but a Coke vending machine is tough to open (i.e. drop one can at a time)? Please discuss it by marginal analysis for optimization.   

Solution

We know that optimization theory means that to finding best optimal solution for the problem. And also analyse the best decision regarding cost and benefits.

1. In the above statements are confered that continuing to spend due to non recovery of previous cost invested. This will termed as sunk cost of the company. We know that sunk cost means that a cost that has already been incured and not recovered. Here decision is made based on the previous cost pattern of the company.

2. In the above statement is disscuss on the basis of marginal analysis of optimization. Here when a news paper vending mechines are normally allows multiple printing. Here the publisher allow this because they believe that the consumer will take more than one paper. That means the producing second paper is the marginal utility is zero.

But in the case of soft drink veding mechines normally produced one or one bottle at the same time. That means the utility of second bottle is low. That people use the same bottle in the future consumption.