Microeconmoics problems - Essay Example

When the first customer is admitted, the marginal benefit ($15.25) exceeds the marginal cost of that customer ($14). When the second customer is admitted, the marginal benefit of $15.25 received exceeds the marginal cost of $14.5 of admitting the second customer. Similarly, when the third customer is admitted, the marginal benefit ($15.25) of admitting the third customer exceeds the marginal cost ($15). However, if the fourth customer is admitted, marginal cost ($15.5) exceeds the marginal benefit ($15.25). Hence 3 customers should be admitted per hour to earn an optimum profit. b) If the price of one-hour workout is increased to $16.

25, five customers should be admitted. If more than 5 customers are admitted, marginal cost will exceed marginal benefit. Question 8: a) The cost of taking an additional class for Lauren $20. The optimal number of classes should be where the marginal benefit of taking a class exceeds its marginal cost. When Lauren takes 1 class, her marginal benefit ($23) exceeds the marginal cost ($20). But if Lauren takes the second class, her marginal cost of $20 exceeds the marginal benefit of $19. Hence Lauren’s optimal number of karate class per week is one. b) Georgia’s optimal number of karate classes per week is 2 since when she takes two classes; her marginal benefit of $22 exceeds her marginal cost of $20.

Question 12: The following table shows the marginal cost and marginal benefit De Beers receive at each quantity of diamond produced: Quantity of Diamonds Total benefit ($) Marginal Benefit ($) Total cost ($) Marginal cost ($) 0 0 0 0 0 1 1000 1000 50 50 2 1900 900 100 50 3 2700 800 200 100 4 3400 700 400 200 5 4000 600 800 400 6 4500 500 1500 700 7 4900 400 2500 1000 8 5200 300 3800 1300 As shown above, De Beers marginal cost of producing the sixth diamond exceeds the marginal revenue received.

Hence De Beers should produce five diamonds as this is the optimal quantity of diamonds De Beers should produce to maximize its total gain. The above graph shows that De Beers should produce 5 diamonds. If De Beers produce more than 5 diamonds, the marginal cost will exceed the marginal benefit which will reduce the overall benefit of De Beers. c) The following table shows that De Beers earns the gains the highest when 5 diamonds are produced. De Beers’ highest net gain is $3200 if 5 diamonds are produced.

Total benefit ($) Total cost ($) Net gain ($) 0 0 0 1000 50 950 1900 100 1800 2700 200 2500 3400 400 3000 4000 800 3200 4500 1500 3000 4900 2500 2400 5200 3800