Question
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
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?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started