Question

ANSWER THE FOLLOWING AND STATE A BRIEF REASON FOR YOUR CHOICE.

1. Which of the following does NOT occur when net benefit is maximized?

A Marginal cost equals marginal benefit.

B Total benefit exceeds total cost by the greatest amount.

C The number that results when total cost is subtracted from total benefit is as large as possible.

D The additional satisfaction from consuming one more unit of the activity exceeds the additional cost by the greatest amount.

2 An individual will maximize his or her satisfaction from an activity by engaging in it to the point where:

A total cost equals total benefit

B marginal benefit equals total benefit

C marginal cost equals marginal benefit

D total cost equals total benefit minus marginal benefit

3. When there is no cost for a good or activity, net benefit is maximized where marginal benefit is: A zero B maximized C less than zero D greater than zero

A zero

B maximized

C less than zero

D greater than zero

4. Oscar’s marginal benefit exceeds his marginal cost by the greatest amount when he is consuming 10 units of a product. To maximize his net benefit, Oscar should:

A stop consuming at 10 units.

B consume more than 10 units of the product.

C have stopped consuming the product before he reached 10 units.

D not enough information to answer the question.

Answer 1

1) The following does not occur : The additional satisfaction from consuming one more unit of the activity exceeds the additional cost by the greatest amount because at maximum net benefit the additional benefit should be equal to additional cost.

2) An individual will maximize his or her satisfaction from an activity by engaging in it to the point where: marginal cost equals marginal benefit because Net benefit=Total benefit-total cost, and the first order maximization condition found by first derivative and equating it to zero we get marginal cost equals marginal benefit

3) Marginal benefit is first derivative of total benefit so to maximize total benefit we equate the derivative of total benefit i.e. marginal benefit should be equated to 0. Thus When there is no cost for a good or activity, net benefit is maximized where marginal benefit is: zero

4) To maximize his net benefit, Oscar should:consume more than 10 units of the product. because to maximize net benefit we have to equate marginal benefit and marginal cost.