Question

Suppose I decide to make a little bit of extra money by reselling t-shirts. I pay $10.00 for each box of t-shirts. I then decide to auction them off. Below is how much I expect to make by auctioning them off from previous experience (total benefit) T-shirt Boxes Total Benefit Total Cost Net Benefit Marginal Benefit Marginal Cost Fill in the Total Cost, Net Benefit, Marginal Cost, and Marginal Benefit columns. 1) If I want to maximize my net benefit from the auction, how many boxes of t-shirts will I auction? What will my net benefit be? 2) If I were to decide how many boxes of t-shirts to auction by comparing MB to MC, how many boxes will I auction off?

Answer 1

Marginal benefit = change in total benefit = 25-0= 25

T-Shirt Box Total Benefit Total Net Benefit Marge cost Monginal Benefit 0 o 0 – 25 25 10 20 10 e o 2 3 4 45 69 75 30 go 40 93 95 17 86 36 & G 95 35 Total cost = T-shirt Box X price of t-shird box Net Benetto Total Benefit - Total cost

45-25 = 20 so on

Marginal cost = change in total cost = 10-0 = 10

20-10= 10 so on.

1) the net benefit will be maximised where the Margins benefit ( MB) equals with marginal cost(MC).

Here there is no such case of equality so we will take the just above MB then MC and the quantity will be 5 T-shirt boxes to be auctioned to get maximum profit and the net benefit will be $36.

2) by comparing MB = MC, as there is no such equality is being established we will take the MB >MC to decide the auction quantity if we take MB < MC then we will be at loss.

So the auction quantity of boxes would be 5 box. Where MB is just above MC and net benefit is maximised.