Managerial Economics

MBA

MANAGERIAL ECONOMICS

Arcadia IMBA Module 2

University Wide Individual Assignment (UWIA)

12th July 2013

PROBLEM SET #1

1. Complete the following table and answer the accompanying questions.

a. At what level of the control variable are net benefits maximized?

Net Benefit is also profit. The formula for this is MB = MC. As seen in the table completed above, after applying the formula then net benefit is maximized where Q = 106.

b. What is the relation between marginal benefit and marginal cost at this level of the control variable?

Where marginal benefit is equal to marginal cost (MB = MC), net benefit is maximized

2. Arcadia recently instituted an in-house recycling program. The benefits of this program include not only the benefits to the environment of recycling but also the goodwill generated by Arcadia's leadership in this area. The costs of recycling include all of the energy, labor, and space required to do the recycling. Suppose these benefits and costs are given by

B(Q) = 100Q – 2Q2 and

C(Q) = 2Q

(Note that Marginal Benefit (MB) = 100 – 4Q, and Marginal Cost (MC) = 2.)

a. What level of Q maximizes the total benefits of recycling?

To maximize total benefit of recycling, marginal benefit must be equal to zero (MB = 0). At Q = 25, total benefits of recycling is maximized.

Reason: MB = 0 ( 100-4Q = 0 ( 25 = Q

b. What level of Q minimizes the total costs of recycling?

Total cost of recycling is minimize where Q = 0 (zero).

c. What level of Q maximizes the net benefits of recycling?

To maximize net benefit of recycling, marginal benefit must be equal to marginal cost (MB = MC). At Q = 24.5, net benefits of recycling is maximized.

Reason: MB = MC ( 100-4Q = 2 ( 24.5 = Q

d. What level of recycling is optimal? Why?

At Q = 24.5, level of recycling is optimal as this is the maximum net benefit of recycling...