Suppose that you can schedule a worker up to four hours per day. The benefit function is given by B(H) = 500H - 22.5H2 and the cost function is given by C(H) = 100 + 15H2. The corresponding marginal benefit and marginal cost functions are given by MB(H) = 500 - 45H and MC(H) = 100 + 30H. What is the best choice of hours for this worker?
What will be an ideal response?
Setting MC = MB gives 500 - 45H = 100 + 30H, so H = 5.3, which exceeds the four hours per day the worker can be scheduled. At H = 4, MB = 320 and MC = 220. Since MB > MC at H = 4, the worker should be scheduled for 4 hours.
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