4. Picking a Quality LevelSuppose dwelling quality is measured on a scale of 1 to 10, and the monthly costof producing a particular quality equals the square of the quality level: For qualitylevel 1, the cost is $1; for quality level 2, the cost is $4, and so on. The monthlyrent equals the price per unit of quality (P = $9) times the quality level.Total revenueBTotal costQuality of dwellingMarginal costMarginal revenueQuality of dwellingOwner's objective is to maximize profit, the gap between total revenue and totalcost. Profit is maximized at the quality level where the marginal benefit (the priceof quality) equals the marginal cost: q*.a. Use a two-panel graph as the above figure to show the profit- maximizingquality level.b. At the profit maximizing quantity ofmarginal cost equals

Answered: Image /qna-images/answer/115bc4b9-6c6d-46e9-931b-e979499e0e79.jpg

Answered: 4. Picking a Quality Level Suppose…

Microeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506893

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter7: Consumer Choice And Elasticity

Section: Chapter Questions

Problem 8CQ

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