(a)
To find:
The total benefit when Qis 2 and when Qis 10.
Answer to Problem 9CACQ
When Qis 2, total benefit is 32 and when Qis 10, the total benefit is 0.
Explanation of Solution
Use the given equation,
Total Benefit is given by,
When Quantity, Qis 2, total benefit will be,
Thus, when Quantity is 2, total benefit is 32.
When quantity ( Q ) is 10, total benefit is as follows:
Thus, when Qis 10, the total benefit is 0.
Total benefit:
Total benefit refers to the total satisfaction a consumer can get after consumption. It can also be the maximum amount that a consumer will pay to get a commodity or service.
(b)
To compute:
The marginal benefit when Qis 2 and Qis 10.
Answer to Problem 9CACQ
When Qis 2, marginal benefit is 12 and when Qis 10, the marginal benefit is -20.
Explanation of Solution
Use the given equation, marginal benefit is as follows:
When Qis 2, marginal benefit is as follows:
Thus, if Qis 2, marginal benefit is 12 and when Qis 10, marginal benefit is as follows:
Thus, if Qis 10, the marginal benefit is -20.
Marginal benefit:
Marginal benefit is the addition to total benefit when an additional unit of good is consumed.
(c)
To find:
The level of Q that maximizes total benefit
Answer to Problem 9CACQ
When Qis 5, total benefits are maximum.
Explanation of Solution
Total benefit is given by the equation,
Taking the derivative of B( Q ) and setting it equal to zero gives,
Thus, when Qis 5, total benefits are maximum. To verify that, second derivative should be negative.
Therefore, at Qis 5, total benefits are maximum.
Total benefit:
Total benefit refers to the total satisfaction a consumer can get after consumption. It can also be the maximum amount that a consumer will pay to get a commodity or service.
(d)
To compute:
The total cost when Qis2 and when Q is 10.
Answer to Problem 9CACQ
When Qis 2, the total cost is $12 and when Q = 10, total cost is $204.
Explanation of Solution
Total cost is the
When Q is 2,
Thus, when Qis 2, the total cost is 12.
When Q = 10, total cost will be,
Thus, when Qis 10, total cost is 204.
Total cost:
Total cost is the total amount incurred in production of goods or services.
(e)
To find:
The marginal cost when Qis 2 and when Q is 10.
Answer to Problem 9CACQ
When Qis 2, the marginal cost is 8 and when Qis 10, the marginal cost is 40.
Explanation of Solution
Marginal Cost
When Qis 2, marginal cost is as follows:
When Qis 10, marginal cost is as follows:
Thus, if Qis 10, the marginal cost is 40.
Marginal cost:
Marginal cost is the addition to total cost when an additional unit is produced.
(f)
To find:
The level of Q which minimizes cost.
Answer to Problem 9CACQ
When Q = 0, the cost is minimum.
Explanation of Solution
Total cost is,
Taking the derivative and setting it to zero,
To verify that it is minimum, check that the second derivative is positive,
Therefore, at Qis 0 total cost is minimum.
Total cost:
Total cost is the total amount incurred in production of goods or services.
(g)
To find:
The level of Q which maximizes net benefits.
Answer to Problem 9CACQ
Net benefits will be maximum when Qis 2.5.
Explanation of Solution
Since,
And,
For the maximum net benefits, it follows that,
Thus, the net benefits will be maximum when Qis 2.5
Net benefits:
The net benefits are the maximum at that level of control variable ( Q ) where the marginal benefits are equal to the marginal costs. The following condition equation is used for maximum net benefits:
Where,
MB( Q ) ismarginal benefits, and
MC( Q ) is marginal costs.
Want to see more full solutions like this?
Chapter 1 Solutions
MANAGE.ECON+BUS EBOOK W/CONNECT
- Joe's search costs are $5 per search. He wants to buy a smart watch for his wife for Christmas, and the lowest price he's found so far is $300. Joe thinks 80 percent of the stores charge $300 for smart watches and 20 percent charge $200. Joe's optimal decision is to Multiple Choice continue to search for a lower price since the expected benefit of an additional search is $20, which exceeds his per-unit search costs. continue to search for a lower price since the expected benefit of an additional search is $80, which exceeds his per-unit search costs. stop searching and purchase a video player for $300. continue to search for a lower price since the expected benefit of an additional search is $100, which exceeds his per-unit search costs.arrow_forwardThis is not a writing assignment, this is a multiple-choice question Of the following, in which case have the incentives been correctly placed to produced the desired results? Group of answer choices To protect the beautiful beach it is made communal property that belongs to everyone, together, and to no one individually. Each person using the beach thinks that the beach belongs to him/her, but when leaving the beach leaves his/her trash around for someone else to pick up, because the beach really belongs to everyone. Rent control forces the price of apartments below the market rate to make apartments more affordable, but has no income restriction requiring the lower priced apartments to be rented out to low income people. Rent control always results in shortage. Landlords prefer to rent out their few available apartments to people with assured income and small families. A piece of communal property is parceled out to many families, and each family receives a plot in which to…arrow_forwardAccording to the marginal decision rule, if marginal benefit: Group of answer choices A. exceeds marginal cost, an activity should be increased. B. is less than marginal cost, an activity should be increased. C. exceeds marginal cost, net benefit is maximized. D. is already equal to marginal cost, an activity should be increased.arrow_forward
- Is this example also an example of economically rational decision making? “In 2019, I started my small business by selling prints of my photographs. Now it’s temporarily closed. During this time I had the option of shipping my prints through USPS or UPS. I decided to ship my prints through USPS instead of UPS since it was a bit expensive at the time. My prints that were shipped out from USPS arrived in time and came in good condition. The opportunity cost is the cost of UPS shipping.”arrow_forwardSuppose that you can purchase satellite TV service for a fixed monthly fee of $79, no matter how many hours of TV you watch. Assuming that the principle of diminishing marginal benefit applies to watching TV, the optimal (efficient) number of hours of TV to watch per month is: Group of answer choices Zero The number of hours where marginal benefits are zero. The number of hours where marginal cost is lowest. The number of hours where marginal benefits are maximized.arrow_forwardSuppose that the expected exam scores from studying economics for 0, 1, 2, or 3 hours are 65, 80, 90, and 95 points, respectively, while the expected exam scores for studying 0, 1, 2, or 3 hours of accounting are 50, 65, 70, and 70 points, respectively. With 3 total hours of study time, your combined scores can be maximized by spending _______ hours studying accounting. Group of answer choices A. 1 B. 3 C. 2 D. 0arrow_forward
- In Chapter 1 we examined two efficiency criteria: Pareto efficiency and Kaldor Hicks efficiency. Recall that Pareto allows projects to go forward only if losers are fully compensated, whereas Kaldor-Hicks allows them to proceed as long as aggregate benefits exceed costs, or if B > C (that is, compensation of losers is not required). According to Michelman’s (1967) criterion, projects can go forward if B C > min(S, D), where, recall, S are settlement costs and D are demoralization costs. Given this formula, explain why Michelman is more permissive than Pareto but less permissive than Kaldor Hicks.arrow_forwardBob has to make a choice between three mutually exclusive options. He ranks these options from best (1) to worst (3). Because Bob is rational, he chooses the best option (1). The opportunity cost of Bob's decision is defined by the summed values of options 2 and 3 the average values of options 2 and 3 the value of option 2 the value of option 3arrow_forwardWhich of the following are examples of common behavioral errors in decision making (multiple correct answers; check all that apply). A. Always paying more than true willingness to pay. B. Letting unrecoverable sunk costs influence ongoing decisions for when such costs have no bearing on benefits and costs going forward. C. Making different decisions when an identical problem is framed in two different ways, especially when one is framed in terms of gains and the other in terms of losses. D. Always saving too little. E. Generally spending too little on high-quality, high-priced items. F. Settling on a default alternative in the face of a difficult or complex decision G. Considering the average cost and average benefit, instead of the marginal cost and marginal benefit, When choosing whether a little more or less should be bought or produced.arrow_forward
- Whose work on decision making received a 2002 Nobel Prize?arrow_forwardSuppose an individual is looking to build a house in a plain that is prone to flooding. Because of the risk of damage due to flooding, the buyer's top dollar for building the house is only $290,000. Suppose the cost of building a house in this area is $330,000. A wealth-creating transaction is not possible since the seller's bottom line (or the cost of building the house) is (LESS THAN, EQUAL TO, GREATER THAN) the buyer's top dollar. The difference between the cost of building the house minus the buyer's top dollar is $_______. Suppose the government subsidizes flood insurance for homes in the flood plain. Because of this, the buyer has access to very cheap insurance, worth an expected $70,000. Without such a subsidy, the high likelihood of flood results in extremely high rates for flood insurance. With this subsidy, the individual (IS, IS NOT) incentivized to build a house in the flood plain..arrow_forwardA firm has the following benefits and costs equations: B(Q) = 450Q - 26Q² and C(Q) = 126 + 18Q² Q that maximizes NB? The maximum net benefit is (profits)? Q that max TB? The profits that max TB? The results above indicate that: A. Profits are maximized at Q that max TB B. Profits at max TB > profits at max NB C. Profits at max TB < profits at max NB D. None of these statements is correct.arrow_forward
- Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning