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Table: Marginal Analysis of Sweatshirt Production II:
Quantity of shirts Total Benefit (in dollars) Total Cost (in dollars)
0 $0 $0
1 16 9
2 32 20
3 48 33
4 64 48
5 80 65
Given the information above, the optimal quantity of sweatshirts that will be produced is. [Hint: Find out the MB and MC.]
a) 2
b) 3
c) 4
d) 5

Answer :

sadddamkashmiri801

Answer:

Optimal qauntity is 4 Units

Explanation:

Here, we have to decide quantity of production at which maximum profit can be generated. For this reason we will have to contruct a table which will help us to calculate Marginal Benefit and Marginal cost. This table is given as under:

Quantity  Total benefit   Marginal benefit     Total Cost     Marginal Cost

0 Units            0                     0                              0                       0

1 Units            16                    16                              9                       9

2 Units           32                   16                             20                      11

3 Units           48                   16                             33                      13

4 Units           64                   16                             48                      15

5 Units           80                   16                             65                      17

We can see that at 4 Units, marginal revenue is almost equal to marginal cost. At this level of production, we have maximum benefits generated which is:

Maximum Benefit Generated = ($16 - $9)   +  ($16 - $11)   + ($16 - $13)  + ($16 - $15) = $7 + $5 + $3 + $1 = $16 for 4 Units

We can also cross check by considering 5 units case to assess whether the benefit generated is more than 4 units case or not.

Maximum Benefit Generated (For 5 Units) = ($16 - $9)   +  ($16 - $11)   + ($16 - $13)  + ($16 - $15)  +  ($16 - $17) = $7 + $5 + $3 + $1 - $1 = $15 for 4 Units

As the maximum benefit generated in the case of 4 units is more because of using marginal revenue = Marginal Cost relation, hence the optimal quantity is 4 units.

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