A1.5 You are a manager of Kelly’s Koffie, a local coffee shop that produces the best iced lattes around. The price of an iced latte is $6, so Kelly’s Koffie’s total revenue is TR1Q2 = 6Q when it produces Q iced lattes. Kelly’s Koffie incurs a total cost of TC1Q2 = 0.02Q2 + 2Q Kelly’s Koffie’s total profit equals total revenue minus total cost.

a. What is Kelly’s Koffie’s marginal benefit of producing and selling each additional iced latte?

b. What is Kelly’s Koffie’s marginal cost of producing and selling each additional iced latte?

c. What is the profit-maximizing number of iced lattes, Q*, that Kelly’s Koffie should produce and sell?