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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 onehour workout. Use the
principle of marginal analysis to find the optimal number of customers that you should
admit per hour.
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View Full Documentb. (15 points) You increase the price of a onehour 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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 Fall '08
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