Chapter 3 Question

Topics: Marginal cost, Economics, Cost Pages: 2 (451 words) Published: January 1, 2013
LECTURE 3 – TAKE HOME QUESTIONS

Question 1
Use the following graph showing the marginal benefit and marginal cost curves for activity A to answer the following questions.

a.Net benefit is maximized when _________ units of A are chosen; marginal benefit is $_________ and marginal cost is $_________. b.If 300 units of A are chosen, net benefit will increase by $_________ if one _________ unit of A is used. c. If 100 units of A are chosen, net benefit will increase by $_________ if one _________ unit of A is chosen.

Question 2

Fill in the blanks in the following table. Then use the table to answer the questions: X| TotalBenefit| TotalCost| MarginalBenefit| MarginalCost| NetBenefit| 0123456| _____200__________450_____500| 030_______________255_____| xx_____100__________30_____| xx__________5065_____75| 0_____230270_______________| a.If activity X is increased from 3 to 4 units, total benefit ___________ by $_________. b.If X is increased from 3 to 4 units, total cost ___________ by $_________. c.If X is decreased from 6 to 5 units, total benefit ___________ by $_________, and total cost ___________ by $_________. Thus, net benefit _____________. d.The optimal level of activity is ___ units of activity X, and net benefit at the optimal level of X is $____________.

Question 3

Activity A has the following marginal (MB) and marginal cost (MC) functions: MB = 2,500 20A
MC = 500 + 30A
where MB and MC are measured in dollars.
a. The 10th unit of the activity increases total benefit by $_________ and increases total cost by $_________. Since marginal benefit is _________ (greater, less) than marginal cost, adding the 10th unit of activity _________ (increases, decreases) net benefit by $_________. b. The 50th unit of the activity increases total benefit by $_________ and increases total cost by $_________. Since marginal benefit is _________ (greater, less) than marginal cost, subtracting the 50th unit of activity...
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