Cost-Benefit Analysis: Known Cost & Benefit Functions
Suppose a firm faces the total benefit function:
B(Q) = 18Q - Q^2
and the total cost function:
C(Q) = 2 - 2Q +Q^2
a. What quantity should the firm select?
b. What is the amount of total benefits, total costs and total net benefits at the selected quantity?
c. If the first term in the cost equation changed from 2 to 5, how would that impact the solution you provided above in part (a)?
d. describe the impacts in part (c) regarding the change to the optimal output quantity. How do you unambiguously know the quantity selected is the "optimal" one?