A decision maker is choosing the levels of two activities, A and B, so as to maximize

total benefits under a given budget. The prices and marginal benefits of the last units

of A and B are denoted PA, PB, MBA, and MBB.

a. If PA 5 $20, PB 5 $15, MBA 5 400, and MBB 5 600, what should the decision maker do?

b. If PA 5 $20, PB 5 $30, MBA 5 200, and MBB 5 300, what should the decision maker do?

c. If PA 5 $20, PB 5 $40, MBA 5 300, and MBB 5 400, how many units of A can be obtained

if B is reduced by one unit? How much will benefits increase if this exchange is made?

d. If the substitution in part c continues to equilibrium and MBA falls to 250, what will

MBB be?