Question
Nick provides cleaning services in his apartment complex. He cleans one apartment per hour, so, working a full day, Nick can clean a total of
Nick provides cleaning services in his apartment complex. He cleans one apartment per hour, so, working a full day, Nick can clean a total of 8 apartments. The next best use of Nick's time involves online freelance work, which he can pick up at any time for $14 per hour. The following table contains information on Nick's total and marginal costs of cleaning apartments as well as information on his total and marginal benefits from cleaning apartments.
To clean the first apartment, Nick incurs an opportunity cost of $14 (for the hour of earnings forgone) and explicit costs of $4 for replacing cleaning supplies and upkeep of his equipment for a total cost of $18. Since Nick's total cost is zero when he doesn't clean, the marginal cost of cleaning the first apartment is $18. The marginal cost of cleaning the second apartment is $20?he incurs an additional opportunity cost of $14 and an additional $6 in costs for supplies and equipment upkeep. The total cost of cleaning two apartments is therefore $18 for the first apartment plus an additional $20 for the second, or $38.
Since the opportunity cost of tenants' time varies, so too does their willingness to pay for cleaning. Nick's marginal benefit from cleaning an apartment depends on the tenants' willingness to pay. Assume that the occupant of the first apartment will pay Nick $32 to clean the apartment. Nick's marginal benefit of cleaning the first apartment is therefore $32. Consider that the occupant of the second apartment also has a relatively high opportunity cost of cleaning compared to most other occupants and will pay Nick $30 to clean the apartment. Nick's marginal benefit of cleaning the second apartment is therefore $30. His total benefit from cleaning two apartments is equal to the marginal benefit from the second apartment ($30) plus the marginal benefit of the first ($32), or $62.
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