Consider that the C&A Lawnmower Firm operates in a highly competitive industry, the MB(Q)=$100.00, and the estimate for the total cost is given by C(Q)=100,000+20Q+0.1Q²
a. What is net benefit maximizing level of output?
b. What is the total benefit function?
c. What is the maximum net benefit?
a) Ans:
Net benefit is maximized at the output level where the slope of the net benefit is zero
Net benefit=Total benefits-total cost
Total benefit=100*Q=100Q
Net benefit=100Q-(100000+20Q+0.1Q2)
Net benefit=100Q-100000-20Q-0.1Q2
Net benefit=80Q-100000-0.1Q2
Slope of net benefit=?NB/?Q
Slope of net benefit=80-0.2Q
80-0.2Q=0
0.2Q=80
Q=400
net benefit maximizing level of output=400
b) Ans:
Total benefit function=MB*Q
Total benefit function=100*Q
Total benefit function=100Q
c) Ans:
Net benefit=80Q-100000-0.1Q2
Net benefit=80*400-100000-0.1*4002
Net benefit=32000-100000-16000
Net benefit=-52,000
maximum net benefit=$52,000
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