Question

Q TB TC NB MB MC 0 $0 0 $0 - - 1 27 35 2 65 10 3 85 30 4 51 14 5 60 8 6 5 20 The attached spreadsheet includes incomplete information on the total benefits, total costs, net benefits, marginal benefits, and marginal costs of producing different quantities of output for a generic company. First, fill in the empty cells in the attached spreadsheet. What is the marginal benefit of producing the second unit of output (Q = 2)? What is the optimal quantity for this firm to produce? Is this statement true or false: “The optimal quantity occurs where marginal benefit is closest to marginal cost.” Show work.

Answer 1

Ans)

A TB TC NB MB MC
0 0 0 0   
1 35 8 27 35 8
2 65 18 47 30 10
3 85 30 55 20 12
4 95 44 51 10 14
5 103 60 43 8 16
6 123 80 43 5 20

a. According to the table, the optimal level of activity is at A3.

b. The value of net benefit at the optimal level of activity (A3) is $55. Net benefits cannot be increased by moving to any other level of A.

c. The optimal level of activity occurs where marginal benefit is closest to marginal cost because, beyond that point, the marginal costs exceed the marginal benefits.