Question

The topic of this discussion is marginal analysis. The goal of this discussion is to apply the marginal concept in a unique way. Specifically answer this prompt: Craft a scenario and a numeric problem for other students to solve using the Marginal Benefit/Marginal Cost framework. Explain how the "MB" and "MC" are defined in your scenario, and why they increase, decrease or remain constant. Try to use your scenario to explain some behavior or phenomenon that may be puzzling at first glance. You can use any example appropriate (some example ideas could be asking: "Do people wash their car until it is 100% spotless?". "Why does food waste occur?" "Cell phone use while driving on the freeway?" "Using 100% of the toothpaste from the tube?")  Be creative!

(Example response: Food waste and yogurt. Many people throw away their yogurt container with still some edible yogurt inside; it is rare to find someone who will scrape the yogurt container 100% clean. In this example, the quantity or "Q" will be defined as "number of spoonfuls of yogurt," the marginal benefit "MB" is the value of each additional spoonful of yogurt to the consumer (measured in dollars), and the marginal cost "MC" is the effort required to obtain additional spoonfuls of yogurt from the container (measured in dollars). In this example, as the consumer eats more and more yogurt, she gets more full, so the value of each additional spoonful is decreasing (therefore the MB is decreasing). She values the first spoonful of yogurt the most because she is the most hungry at that time, and she values the last spoonful of yogurt the least because she is the most full. The cost of obtaining additional spoonfuls or the MC will be increasing, since the first spoonful will be easy to acquire because the yogurt is plentiful but when the yogurt is close to being finished, the cost of obtaining additional spoonfuls is higher.

Multiple choice question: Let's imagine we have 4 total spoonfuls available in the container, the MB of each is: $5, $4, $2, $1 respectively and the MC of each is: $1, $3, $4, $9. How much yogurt should our consumer eat to maximize total net benefits (TNB)?

• A) 1 spoonful: TNB is $4
• B) 2 spoonfuls: TNB is $9
• C) 2 spoonfuls: TNB is $5
• D) 3 spoonfuls: TNB is $11
• E) 4 spoonfuls: TNB is $12
  1. Clearly defined scenario to explain using the MB/MC framework
  2. Clearly defined quantity, MB, and MC
  3. A multiple choice problem for other students to answer

Answer 1

In the given question ,Lisa is a theater artist who loves to watch movies . She learns new dialogues and dancing moves from the movies and incorporate it in her dance drama theatrical performances . Q is the number of movies she watches in a month .'MB' is the value of additional benefit she receives from watching each movie while MC is the cost price of movie tickets that keeps on increasing with each additional movie she watches .She values the first movie the most as this provides her with the highest amount of satisfaction while her satisfaction keeps on decreasing as she watches more and more movies in a month as she has to sacrifice other entertainment options in order to choose this due to her fixed budget for monthly entertainment.

Let us imagine the highest number of movie that she can watch is 5 . The MB of each movie is 5,4,3,2,1 respectively. while the Marginal cost of each movie is 1,1.5,3.25, 3.5,3.75 respectively.

Using the above data answer the following questions :-

1) How much movies should Lisa watch to maximize TNB ?

a) 1

b) 3

c) 4

d) 5

Answer is b

2) Which unit of movies represents MC > MB ?

a) 1

b ) 2

c) 3

d) 4

Answer is d