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ECO 2013 Miami Dade College Marginal Benefit Economics Presentation

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Economics
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Miami Dade College
Economics (ECO2013)
Problem set 1
Q1.
Suppose Dell is currently selling 250,000 Inspiron laptops per
month. A manager at Dell argues, “The last 10,000 laptops we
produced increased our revenues by $8.5 million and our costs
by $8.9 million. However, because we are making a substantial
profit of $25 million from producing 250,000 laptops, I think we
are producing the optimal number of laptops.”
a) What is the marginal benefit and marginal cost of the last

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10,000 laptops?
Solution:
Marginal Benefit = $8.5 million
Marginal Cost = $8.9 million
b) Briefly explain whether you agree with the manager’s
reasoning.
Solution:
The manager’s reasoning is not justified if these 10,000 laptops were not produced
and sold the substantial profit would be $25.4 million. Because from these 10,000
laptops the marginal benefit is $8.9 million and cost is $8.9 million, the net loss is of
$0.4 million. Hence it is advised not to produce additional 10,000 laptops which will
result in profit of $25.4 million instead of $5 million

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Miami Dade College Economics (ECO2013) Problem set 1 Q1. Suppose Dell is currently selling 250,000 Inspiron laptops per month. A manager at Dell argues, “The last 10,000 laptops we produced increased our revenues by $8.5 million and our costs by $8.9 million. However, because we are making a substantial profit of $25 million from producing 250,000 laptops, I think we are producing the optimal number of laptops.” a) What is the marginal benefit and marginal cost of the last 10,000 laptops? Solution: Marginal Benefit = $8.5 million Marginal Cost = $8.9 million b) Briefly explain whether you agree with the manager’s reasoning. Solution: The manager’s reasoning is not justified if these 10,000 laptops were not produced and sold the substantial profit would be $25.4 million. Because from these 10,000 laptops the marginal benefit is $8.9 million and cost is $8.9 million, the net loss is of $0.4 million. Hence it is advised not to produce additional 10,000 laptops which will result in profit of $25.4 million instead of $5 million Q2. Suppose a bank is deciding whether or not to hire an armed guard to prevent bank robberies. The cost of hiring the armed guard is $10,000 per year and prevents all robberies of the bank from occurring. Without the guard, the bank expects that there will be 8 robberies that year, at a cost of $1,000 per robbery. A. What is the marginal benefit of hiring the armed guard? What is the marginal cost? Will the bank hire the guard? Solution: M ...
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