a) If the marginal benefits of an activity exceed the marginal costs, should the

Question

a)         If the marginal benefits of an activity exceed the marginal costs, should the level of the activity increase, decrease or stay the same. Explain.

b)         If the marginal benefits of an activity are less than the marginal costs, should the level of the activity increase, decrease or stay the same. Explain.

c)         Under what condition is the total revenue maximization solution the same as the total profit maximization solution? Explain. If this condition is not met, compare the output/price solution for the two problems.

d)         What are substitute vs. complement goods? What is the relationship between the price of one and the quantity demanded of the other?

e)         What is the difference between the demand function, direct demand curve, and inverse demand curve?

f)         If price and quantity are such that demand elasticity (in absolute value) is greater than 1.0, what happens to total revenue if price was to decrease vs. increase?

g)         If price and quantity are such that demand elasticity (in absolute value) is less than 1.0, what happens to total revenue if price was to decrease vs. increase?

h)         Total revenue is maximized if demand elasticity (in absolute value) equals what?

Explanation / Answer

will answer 4 parts as required by chegg policy

A increase because it increases profit or revenue or returns

B Decrease because it decreases profit or revenue or returns

C when cost is zero. If it is not met profit will be maximized by setting marginal cost equal to marginal revenue. Revenue will be maximized even if we take care of average costs

D substitutes are those goods which can be replaced one in place of other in consumers budget. Complements are those which are required at the same time. As price of one substitute good is raised quantity demanded of other increases and vice versa

In case of complements as price of one good rise quantity demanded of other falls

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