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 0 0 $25 $45 $63 $75 $86 $95 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

TC = Q * cost per box

Net Benefit = TB - TC

MB = Change in TB / Change in Q

MC = Change in TC / Change in Q

T shirt boxes	Total Benefit	Total Cost	Net Benefit	MB	MC
0	0	0	0
1	25	10	15	25	10
2	45	20	25	20	10
3	63	30	33	18	10
4	75	40	35	12	10
5	86	50	36	11	10
6	95	60	35	9	10

1. Net Benefit is maximum at Q = 5,

Net benefit = 86 - 50 = 36

2.

For profit maximization, MC = MB,

From table we see, MC and MB are not equal, so we select output for which MC is just below MB

From Table we See at output level of 5 boxes, MC is just below MB

So 5 boxes will be auctioned