Question

the marginal WTP and MC information below.  

Output level	Marginal WTP	MC	Incremental NB	Total NB
1	20	5
2	18	6
3	16	7
4	14	8
5	12	9
6	10	10
7	8	15
8	6	21
9	4	30
10	2	40

      a.   Determine the socially efficient rate of output.  

      b.   Complete the last two rows of the table to show the incremental or marginal change in net benefit (NB) and the total net benefit (NB) for each level of output.

      c.   Verify that the socially efficient rate of output you chose as your answer in (a) is, in fact, the level that maximizes total net benefit.

Answer 1

Output level, Q	Marginal WTP	MC	Incremental NB= MWTP-MC	Total NB = Summation of NB
1	20	5	15	15
2	18	6	12	27
3	16	7	9	36
4	14	8	6	42
5	12	9	3	45
6	10	10	0	45
7	8	15	-7	38
8	6	21	-15	23
9	4	30	-26	-3
10	2	40	-38	-41

(a) Socially efficient rate of output is when marginal willingness to pay equals MC. Therefore, socially efficient rate of output is 6 units i.e where MWTP=MC=10.

(b) Incremental NB= MWTP-MC.

Total NB = Summation of NB.

(c) From the table we can see that total net benefit maximizes when Q=6 units because at Q=6 units , total net benefit = $45 i.e at maximum.