Question

Refer to the accompanying table below. According to the Cost-Benefit Principle, how many units of this activity should be carried out? Units of Activity Total Cost Total Benefit 0 $0 $0 1 $30 $100 2 $40 $160 3 $60 $190 4 $100 $210 5 $150 $220 6 $210 $225 Multiple Choice 4 6 1 3

Answer 1

Ans: 3 units

Explanation:

Units of Activity	Total Cost ( $ )	Total Benefit ( $)	Marginal Cost ( $ )	Marginal Benefit ( $)
0	0	0	0	0
1	30	100	30	100
2	40	160	10	60
3	60	190	20	30
4	100	210	40	30
5	150	220	50	10
6	210	225	60	5

MC = change in total cost / change in units of activity

MB = change in total benefit / change in units of activity

Where MB is greater than or equal to MC .

From the table it is cleared that according to the Cost-Benefit Principle, 3 units of this activity should be carried out.