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Unformatted text preview: Your firm sells club soda in both grocery stores and convenience stores. You have a budget of $550
for store displays, and must decide how to allocate this budget between grocery stores and
convenience stores to maximize the total number of sales. The following table shows the total
number of units that can be sold in grocery stores and convenience stores, according to the number of displays in each type of store. Displays in grocery stores cost $150 each and displays in
convenience stores cost $100 each. #
Number of Total number of 3
Number of Total number of displays in units sold in L9 °
displays in units sold in convenience convenience grocery stores race stores store stores Me/
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_ 2 on 5. Use the graph below to answer the following questions. \I a) A w um mm mum macaws)
U! a. At 15 units of activity, marginal benefit is S b and marginal cost is $._3_ 16‘“: 'rc‘l‘S b. Adding the 15‘:" unit of activity causes net benefit to ""4 ‘4‘” by S Q " 3 ’ 3 . c. At 35 units of activity, marginal benefit is $ 1 and marginal cost is g Atl : H t
c H c.
d. Subtracting the 35th unit of activity causes net beneﬁt to ‘ 0"" ‘* by $ 3 . e. r
e. The optimal level of the activity is L— units. At the optimal level of the activity,.. 2'  (’5') marginal benefit is S i and marginal cost is $ t . TR: $9. 6. A ﬁrm is selling good X for 560/ u nit. Therefore, the total benefit for the firm's sales of good X (revenue) is: ‘6
TB=60X ! _/— bHB em: The cost function for the firm's production of good X is: 11'. 1'"
TC = 1,500 + 30X+ 0.001X2 ‘ U i: Marginal benefit and marginal cost functions for the firm are: are
763 '3 h o . MB = 60 and MC = 30 + .oozx
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a. What isthe quantity of good X that maximizes net benefit (profit)? What is the net benefit
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 Spring '08
 ISSE

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