Assume that Botco, Inc. is constructing 400,000 remote-controlled cars per month

Question

Assume that Botco, Inc. is constructing 400,000 remote-controlled cars per month to sell to hobbyists. After doing some analysis, Botco's chief economist reported that, under current market conditions, the marginal benefit for making remote-controlled cars is equal to $80 while the marginal cost of making them is $70. Given the above information, is Botco making the optimum number of cars per month (i.e., the number that will yield the greatest total benefit/profit)? Should they make more or fewer cars? How many would be too many? If it were possible, what would be the perfect (i.e., optimum) amount? Briefly explain.

Explanation / Answer

Since marginal benefit is 10$ more than the marginal cost, botco can still make more cars and make more overall profit. Therefore, they should make more cars.

As long as there is demand, there is no upper limit since the marginal profit=10$ is positive.

The perfect amount would be infinite provided the marginal costs and benefits remained the same.

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