According to the optimal output rule, if marginal benefit
According to the optimal output rule, if the marginal benefit of producing an additional unit of a good or service is greater than or equal to the marginal cost, it is recommended to produce that additional unit. The optimal output is achieved when the marginal benefit is equal to the marginal cost.
To determine the optimal output, you'll need to calculate the marginal benefit and the marginal cost.
1. Start by calculating the marginal benefit (MB). The marginal benefit is the additional benefit gained from producing one more unit. This can be calculated by evaluating the change in total benefit when one more unit is produced.
2. Next, calculate the marginal cost (MC). The marginal cost is the additional cost incurred from producing one more unit. This can be calculated by evaluating the change in total cost when one more unit is produced.
3. Compare the marginal benefit (MB) and the marginal cost (MC). If the MB is greater than or equal to the MC, it is recommended to produce that additional unit. This implies that the benefit gained from producing an extra unit is at least as much as the cost incurred.
4. Continue this process for each additional unit until the MB becomes less than the MC. At this point, producing more units would result in a decrease in overall benefit.
By following these steps and comparing the marginal benefit and marginal cost, you can determine the optimal output level according to the optimal output rule.