• Refer to fig. 2.1 in the text.1. Identify the optimal level of production of this good.2. In terms of efficiency, is it better to produce the quantity of the good representedby point A or point B?3. Would it be good to produce more than the optimal amount? Explain.

Answered: • Refer to fig. 2.1 in the text. 1.…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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• Refer to fig. 2.1 in the text.
1. Identify the optimal level of production of this good.
2. In terms of efficiency, is it better to produce the quantity of the good represented
by point A or point B?
3. Would it be good to produce more than the optimal amount? Explain.

Expert Solution

Step 1

Optimal level of production is determined at the point where,

MB=MC

Thus, the condition for the optimal level of production (MB=MC) is achieved at point B.

Step 2

Production efficiency is achieved at a point where marginal benefit equals marginal cost. Thus, the marginal benefit is equal to the marginal cost at point B. Therefore, it is better to produce quantity at point B in terms of efficiency.

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