Demonstrate cost benefit analysis The following is a cost function for clinic vi

Question

Demonstrate cost benefit analysis

The following is a cost function for clinic visits in a small inner city clinic:
Quantity of visits Total Cost per Week
0 $10
1 $15
2 $25
3 $45
4 $75
5 $115
6 $165
a. Determine the marginal cost for each level of output.
b. If the price per visit is given to be $25, at what level of visits will the maximum profit position be?
What are the profits at this level?
What is the quantity supplied?
c. If the price per visit increases to $45, what will be the quantity supplied (assuming maximizing profits)?

Explanation / Answer

a) Quantity of visits Total Cost per Week Marginal Cost 0 $10 1 $15 $5 2 $25 $10 3 $45 $20 4 $75 $30 5 $115 $30 6 $165 $50 b) Maximum Profit MR = MC Maximum profit will occur at quantity = 3 Profit = 3*(25)-45 = $30 c) Price increased to $45 Maximum profit will occur at quantity = 5 Profit = 5*45 -115 = $110

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