Question
11. A decision maker wishes to maximize the total benefit associated with three activities, X, Y, and Z. The price per unit of activities
11. A decision maker wishes to maximize the total benefit associated with three activities, X, Y, and Z. The price per unit of activities X, Y, and Z is $1, $2, and $3, respectively. The following table gives the ratio of the marginal benefit to the price of the activities for various levels of each activity:
Level of activityMBXPXMBYPYMBZPZ
1102214
2 91812
3 81210
4 710 9
5 6 6 8
6 5 4 6
7 4 2 4
8 3 1 2
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a. If the decision maker chooses to use one unit of X, one unit of Y, and one unit of Z, the total benefit that results is $______
b. For the fourth unit of activity Y, each dollar spent increases total benefit by $______. The fourth unit of activity Y increases total benefit by $______.
c. Suppose the decision maker can spend a total of only $18 on the three activities. What is the optimal level of X, Y, and Z? Why is this combination optimal? Why is the combination 2X, 2Y, and 4Z not optimal?
d. Now suppose the decision maker has $33 to spend on the three activities. What is the optimal level of X, Y, and Z? If the decision maker has $35 to spend, what is the optimal combination? Explain.
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