Question
. 5. Activity A has the following marginal benefit (MB) and marginal cost (MC) functions: MB100.05A and MC 20.05A where MB and MC are measured
. 5. Activity A has the following marginal benefit (MB) and marginal cost (MC) functions: MB100.05A and MC 20.05A where MB and MC are measured in dollars. a. The 70th unit of activity increases total benefit by $______ and increases total cost by $______. Since marginal benefit is __________ (greater, less) than marginal cost, adding the 70th unit of the activity __________ (increases, decreases) net benefit by $______. b. The 110th unit of activity increases total benefit by $______ and increases total cost by $______. Since marginal benefit is __________ (greater, less) than marginal cost, adding the 110th unit of the activity __________ (increases, decreases) net benefit by $______. c. The optimal level of 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 = 10A 0.025A2 and TC = 2A + 0.025A2 where TB and TC are measured in dollars. d. For the optimal level of activity in part c, the total benefit is $______, the total cost is $______, and the net benefit is $______. e. Compute the net benefit for one unit more and one unit less than the level of activity found to be optimal in part c (i.e., compute NB for A* + 1 and A* 1). Are your results consistent with the definition of optimal? Explain. 14. Use the figure in question 5 to answer the following: a. The equation for marginal revenue is MR = __________________. b. MR crosses the price-axis at P = $________. MR is zero at Q = _________. c. If MR is ____________ (rising, falling, zero, positive, negative), then demand is elastic. d. If MR is ____________ (rising, falling, zero, positive, negative), then demand is unitary elastic. e. If MR is ____________ (rising, falling, zero, positive, negative), then demand is inelastic.
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