What level of employment maximizes total benefit


Problem 1. 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

a. What level of employment maximizes total benefit? What level of employment maximizes average benefit? What level of employment maximizes marginal benefit?

b. What level of employment maximizes total cost? What level of employment maximizes average cost? What level of employment maximizes marginal cost?

c. 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?

d. 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.

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Finance Basics: What level of employment maximizes total benefit
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