Nt1330 Unit 3

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_____ |
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 _________ (increases, decreases) net benefit by $_________. c. The optimal level of the activity is ________ units. At the optimal level of activity, marginal benefit is $_________ and marginal cost is $__________.
The total benefit (TB) and total cost (TC) functions for the activity are:
TB = 2,500A 10A2
TC = 500A + 15A2 where TB and TC are measured in dollars.
d. For the optimal level of the activity in part c, the total benefit is $_________, the total cost is $_________, and the net benefit is