AMS recently instituted an in-house recycling program. The benefits of this prog

Question

AMS recently instituted an in-house recycling program. The benefits of this program include not only the benefits to the environment of recycling but also the goodwill generated by AMS's leadership in this area. The costs of recycling include all of the energy, labor, and space required to do the recycling. Suppose these benefits and costs are given by B(Q) = 100Q - 2Q2 and C(Q) = 2Q. (Note that MB = 100 - 4Q, and MC = 2.)

a. What level of Q maximizes the total benefits of recycling?

b. What level of Q minimizes the total costs of recycling?

c. What level of Q maximizes the net benefits of recycling?

d. What level of recycling is optimal? Why?

Please add clear explanation...

Explanation / Answer

a) Total benefit is maximised where MB = 0

100 - 4Q = 0

100 = 4Q

Q = 25 units

b) Total cost is minimized when quantity is zero because at zero units, firms total cost is also zero.

c) Net benefit of recycling is maximised where MB - MC = 0

100 - 4Q - 2 = 0

98 =4Q

Q = 24.5 units

d) Optimal level of recycling is 24.5 units because at this output, firm is maximising its net benefit.

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