You are a strong advocate for a one-year investment project that would cost your firm $10,000 today, but generate virtually certain earnings of $20,000 at year-end. Those in your firm's financial group concur that the investment is virtually risk-free, but nonetheless your boss is concerned about the firm's cash flow problems. In fact, the problems are so severe that the firm's bank currently charges it 25 percent on one-year loans (paid in full at the end of the year). Convince your boss to undertake the project. In particular, address your boss' concerns about the firm's cash flow problems.
Your firm's research department has estimated your total revenues to be R(Q) = 3; 000Q - 8Q2 and your total costs to be C(Q) = 100 + 2Q2. (Note that the marginal functions are MR(Q) = 3; 000 - 16Q and MC(Q) = 4Q).
(a) What level of Q maximizes net benefits?
(b) What is the marginal benefit and marginal cost at this level of Q?
(c) What is the maximum level of net benefits?