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PS5 Fall 2009 v 4

# PS5 Fall 2009 v 4 - Name Problem Set 5 ECON 211 Fall 2009...

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Name: Problem Set 5 ECON 211, Fall 2009 Due on Friday, October 9 Print out this problem set and write your answers to all graded questions in the space provided. Then hand in this paper on the due date. Part 1: Graded Questions Problem 1: 30 points (Krugman Chapter 9 Problem 7) You are the manager of a gym, and you have to decide how many customers to admit each hour. Assume that each customer stays exactly one hour. Customers are costly to admit because they inflict wear and tear on the exercise equipment. Moreover, each additional customer generates more wear and tear than the customer before. As a result, the gym faces increasing marginal cost. The accompanying table shows the marginal costs associated with each number of customers per hour. a. (15 points) Suppose that each customer pays \$15.25 for a one-hour workout. Use the principle of marginal analysis to find the optimal number of customers that you should admit per hour.

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b. (15 points) You increase the price of a one-hour workout to \$16.25. What is the optimal number of customers per hour that you should admit now? Problem 2: 30 points (Krugman Chapter 9 Problem 1) Hiro owns and operates a small business that provides economic consulting services. During the year he spends \$55,000 on travel to clients and other expenses, and the
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PS5 Fall 2009 v 4 - Name Problem Set 5 ECON 211 Fall 2009...

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