Hello,

I created this for my Microeconomics course. The question was to come up with an example of "Optimization". I chose to focus on Marginal Analysis.

Can you confirm if this looks correct?

Thanks.

An example that was mentioned in the text that could be expanded upon was found towards the end of the chapter in working out how many days should one spend on a vacation trip in Miami. If each additional day is priced at a discount, would it make sense to spend an additional day or two there? We can use this as an example of optimization and the agent looking for the best feasible option.

The issue here would be how many days should the "agent" spend in Miami? 5 days, 6 days, or 7 days? We can use both Total Value as well as Marginal Analysis. However, marginal analysis works better in this type of situation "when there is a clear sequence of feasible alternatives" (List, 2021).

Using the Marginal Analysis scenario, we can determine how many vacation days is optimal. Each additional day spent provides a larger discount at the hotel. For example, a 4-day stay is $600, the 5-day stay is $720, the $6-day stay is $820, and the 7-day stay is $900 Assuming each day has an opportunity cost of $100 (time spent at work rather than on vacation), how many vacation days would be optimal?

Vacation Days	Hotel Cost	Opportunity Cost	Marginal Hotel Cost	Marginal Opportunity Cost	Total Cost
4	$600	$100
5	$720	$200	$120	$100	-$20
6	$820	$300	$100	$100	$0
7	$900	$400	$80	$100	$20

The point at which we should stop at would be the 6-day day vacation. Anything more will have an additional total cost and will not make sense. This is a good example because we may be entitled to 7 vacation days from work and will want to decide if using the additional days are worth the cost.

Reference:

List, J., Acemoglu, D., & Laibson, D. (2021). Microeconomics. Pearson Education.