At the quantity of 1000 tacos the marginal social benefit of...

At the quantity of 1000 tacos the marginal social benefit of a taco is $.50 and the marginal social cost is $.60. To produce the efficient quantity of tacos, Question content area bottom Part 1 A. fewer tacos should be produced B. more tacos should be produced. C. there should be no change in the amount of tacos produced. D. More information on production costs is needed to determine the efficient level of tacos.

Transcript

00:01 Here we have a partially filled table and we are asked to use our deductive reasoning to fill in the rest of the table.

00:11 So we can start with the total revenue column.

00:13 Now remember that total revenue is equal to price times quantity.

00:19 How much is being sold and how much it's sold for.

00:21 So i think we can easily do this.

00:24 Five times 50.

00:26 Total revenue there will be 250.

00:29 Next, 4 times 80 is 320.

00:37 3 times 150, that's 450.

00:41 2 times 800 is 1 ,600, and 1 times 1100 is 2 ,200.

00:50 There's our total revenue column.

00:53 Now for our marginal revenue column.

00:57 Remember that marginal revenue is the change in total revenue.

01:01 So at our starting price of 5, marginal revenue doesn't apply.

01:04 There's no change yet, but going from 5 to 4, our revenue changed by 70.

01:13 250 to 320 is 70.

01:16 At our next price skip, going from here to here, our revenue changed by 130.

01:26 Going from here to here, looks like our revenue changed by quite a lot.

01:31 It changed by 1 ,150.

01:35 Finally, going from here to here, our last price jump, our revenue changed by $600.

01:50 There's marginal revenue.

01:51 Now for marginal cost, we do the same thing with the total cost column.

01:56 So going from a price of 5 to a price of 4, our costs went up by 20.

02:03 Going from here to here, our costs went up by 126.

02:11 Going from here to here.

02:12 Our cost went up by almost a thousand, well over a thousand actually.

02:17 1 ,400.

02:20 Finally going from here to here, our costs went up another 700.

02:28 So what is the profit maximizing point here? remember that profit is maximized where marginal revenue equals marginal cost.

02:38 And with this table, we don't exactly get there, but we get pretty close.

02:43 Here, marginal revenue is a lot bigger than marginal costs, so he'll want to produce more.

02:48 Here, marginal revenue is a lot less than marginal cost, so he'll want to produce less.

02:54 And here, they're just about equal.

02:57 They're close enough.

02:58 Here, it's as close as they can get without marginal revenue dipping below marginal cost.

03:03 So, this firm will produce three units of output at a price of 150, and that will maximize profits.

03:14 Now we are asked to redo the table to see what happens if this taco stand spends some money on an advertising campaign that increases quantity demanded.

03:25 So let's clear this whiteboard and redo the table so we can show that...

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