Question

At REC, a major product is the power supply. REC's unit cost to manufacture is $900,...

At REC, a major product is the power supply. REC's unit cost to manufacture is $900, while its selling price is $1250. However, if the power supply does not sell at retail, it can be sold at a discount for $850 per unit.

a) What is the Net Marginal Benefit of purchasing each incremental unit?

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Answer #1

Marginal Benefit (MB) is defined as the maximum amount a customer is willing to pay for an incremental unit consumption. In other words, Marginal Benefit (MB) represents the utility that the customer associates with the consumption of an extra unit of the product.

In this question our selling price is cost to customer. So incremental price that customer have to pay if the power supply does not sell at retail is $1250 - $850 = $400.

Net Marginal Benefit is $400

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