Problem: Suppose you are a county commissioner faced with deciding how many public health nurses to employ within the county. The following table shows total benefits and total costs from different levels of employment. Fill in the table and answer the questions:
Number of
public
health Total Total Average Average Net Marginal Marginal Marginal
nurses benefit cost benefit cost benefit benefit cost net benefit
0 0 10
1 100 15
2 190 25
3 270 40
4 340 60
5 400 85
6 450 115
7 490 150
8 520 190
9 540 235
10 550 285
Q1. What level of employment maximizes total benefit? What level of employment maximizes average benefit? What level of employment maximizes marginal benefit?
Q2. What level of employment maximizes total cost? What level of employment maximizes average cost? What level of employment maximizes marginal cost?
Q3. What level of employment maximizes net benefit? What is the relationship between marginal benefit and marginal cost at this level of employment? Is there a relationship between average benefit and average cost at this level of employment?
Q4. Why is total cost equal to 10 when there is no employment? We call this amount fixed cost. If there were no fixed costs, then costs would be reduced by 10. Does the presence of fixed costs change the optimal employment level? Explain, why or why not.