PS 1 answers

PS 1 answers - PAM 2000 Intermediate Microeconomics Spring...

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PAM 2000, Intermediate Microeconomics Spring 2009 1.29.09 1. Provide an example of your own of such non-market allocation, and discuss how  marginal benefit/marginal costs analysis would apply to that example. Shampooing hair could constitute as an example. The marginal benefit would be the extra  cleanliness gained with every wash, while the marginal cost would include extra dandruff or  dryness and abrasion of the scalp gained each time due to excessive washing (i.e. when the  number of washes exceeds the optimal quantity).  2. Draw a MB/MC diagram for your example, and explain in words why the MB and MC  curves have the shapes they do. What does a point on the line mean? What is the  interpretation of the area under the curves? Be sure to label both axes carefully. 3. Explain what the optimal quantity of the activity you identify is, and why that is the  optimal quantity. Do you expect that the optimal quantity will be the actual quantity that  we observe in the world? Why or why not? The optimal quantity of shampooing is once per day because that is when the marginal  benefit equals marginal cost. The optimal quantity should be an accurate reflection of the  actual quantity because despite the constancy of certain assumptions (the time period  consists of 1 day), if the conditions are met, then one wash should suffice for one day.  True/False/Uncertain 1)
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This note was uploaded on 08/28/2009 for the course PAM 2000 taught by Professor Evans,t. during the Spring '07 term at Cornell.

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PS 1 answers - PAM 2000 Intermediate Microeconomics Spring...

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