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Answer the following questions thoroughly. 1. Recall from Ch. 3 that Net Benefit (NB) = Total Benefit (TB) - Total Cost (TC) while Marginal Benefit

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Answer the following questions thoroughly. 1. Recall from Ch. 3 that Net Benefit (NB) = Total Benefit (TB) - Total Cost (TC) while Marginal Benefit (MB) = the change () in TB/ a change () in activity (A) and Marginal Cost (MC) = the change () in TC/ a change () in activity (A). Using these formulas, fill in the blanks on the table below. (I suggest you do this in Excel and then paste in back in to a Word document). (3 pts) TB TC NB MB MC 50 0 $0 n/a n/a 35 8 27 35 8 2 65 18 47 30 10 3 85 30 55 20 12 95 44 51 10 14 OUT E 103 60 43 8 16 108 80 28 5 20 a. What is the optimal activity in the table above? The optimal activity is A* = 3 (units) when the net benefit is at its peak. b. What is the value of net benefit at the optimal level of activity? Can net benefit be increased by moving to any other level of A? Explain. No, any change in activity will make net benefit decrease. The value of NB* = $55 The optimal level of activity is the level with the greatest possible net benefit, so this means that no other level of A can have a higher net benefit than A*. c. Using the numerical values in the table, comment on the statement, "The optimal level of activity occurs where marginal benefit is closest to marginal cost."

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