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Chapter 1: Q2 (page 17)

Cite three examples of recent decisions you made in which you, at least implicitly, weighed marginal cost and marginal benefit.

Short Answer

Expert verified

The examples are as follows:-

  • In day-to-day life, a person may consume snacks. The marginal analysis will be required to determine the extra units he would consume. You need to decide how many extra units you will consume depending on the marginal analysis.
  • As exams approach, students need to increase their hours of study. The marginal cost for students is leisure time, and the benefit is the number of chapters they learn.
  • If one chooses to earn more than what they have, they have to choose between their time (marginal cost) and an expansion in their income (marginal benefit).

Step by step solution

01

Understanding marginal cost and marginal benefit

Marginal cost is the increase in production cost incurred in producing one additional unit.It adds to the variable cost on each successive unit, such as making one extra packet of chips.

Marginal benefit is the additional benefit or welfare you enjoy by consuming one more unit. It is about the difference in benefit by a margin of one unit, such as the fee received by the institute on admitting one more student in the class.

02

Explanation for example 1

The price of one cheeseburger is $3, and the person has only $3 in his pocket. He wants to buy one burger for a beggar with that money, though he will have no money after that. The marginal cost for the person will be$3. On the other hand, the person's marginal benefit will be the utility or satisfaction gained by helping the hungry beggar eat.

03

Explanation for example 2

Suppose a student is preparing for the exam but has not completed the syllabus and need one more hour to complete one more chapter. In this case, the student's marginal cost will be one hour of his leisure time, and the marginal benefit will be one chapter that he is required to finish for the exam.

04

Explanation for example 3

If a person can earn $2 more by working an extra hour, they would increase their earnings. However, the final decision will depend on the marginal cost and benefit analysis.

Here, the marginal cost will be one hour, and the marginal benefit will be $2.If the marginal benefit exceeds the marginal cost, the person will consider working for an extra hour. On the contrary, if the marginal cost exceeds the marginal benefit, the person would not be working extra hours.

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Most popular questions from this chapter

Pham can work as many or as few hours as she wants at the college bookstore for \(12 per hour. But due to her hectic schedule, she has just 15 hours per week that she can spend working at either the bookstore or other potential jobs. One potential job at a café will pay her \)15 per hour for up to 6 hours per week. She has another job offer at a garage that will pay her \(13 an hour for up to 5 hours per week. And she has a potential job at a daycare center that will pay her \)11.50 per hour for as many hours as she can work. If her goal is to maximize the amount of money she can make each week, how many hours will she work at the bookstore?

Suppose that you are given a \(100 budget at work that can be spent only on two items: staplers and pens. If staplers cost \)10 each and pens cost $2.50 each, then the opportunity cost of purchasing one stapler is

a. 10 pens.

b. 5 pens.

c. zero pens.

d. 4 pens.

Suppose that based on a nation's production possibilities curve, an economy must sacrifice 10,000 pizzas domestically to get the one additional industrial robot it desires, but it can get the robot from another country in exchange for 9,000 pizzas. Relate this information to the following statement. "Through international specialization and trade, a nation can reduce its opportunity cost of obtaining goods and thus move outside its production possibilities curve."

Potatoes cost Janice \(1 per pound, and she has \)5.00 that she could possibly spend on potatoes or other items. If she feels that the first pound of potatoes is worth \(1.50, the second pound is worth \)1.14, the third pound is worth \(1.05, and all subsequent pounds are worth \)0.30 per pound, how many pounds of potatoes will she purchase? How many pounds will she purchase if she has only $2 to spend?

Explain how (if at all) each of the following events affects the location of a country's production possibilities curve.

a. The quality of education increases.

b. The number of unemployed workers increases.

c. A new technique improves the efficiency of extracting copper from ore.

d. A devastating earthquake destroys numerous production facilities.

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