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mgr econ 5 - of purchasing more television advertisements...

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1. Evaluate the following statements: a.The optimal level of an activity is that level for which marginal benefit exceeds marginal cost by the greatest possible amount.” When determining the optimal level of an activity for which MB exceeds MC, you have to consider TB>TC. This is when total benefits exceeds total cost by a larger number. b. “This is a lousy vacation resort, and it’s been raining the whole time. It’s leave but I’ve already paid for the hotel for the week, so I guess I will stay.” Since the hotel is paid for the week it would be consider a sunk cost. A sunk cost is a fee that is paid that cannot be retrieved. Once the hotel room is paid for it is final. It is essential for someone to examine MB and costs, and then make the decision if he or she wants to stay. c.“Now is the perfect time to buy more television ads because the TV networks are offering us lower prices on any extra ads we purchase.” It would only be right to buy more television advertisements if the costs are low. If the MC
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Unformatted text preview: of purchasing more television advertisements are less than the MB of airing more advertisements then sure it would be beneficial. d.“I hate golf, but I paid so much for the clubs that I can’t give it up.” Since the golf clubs were a one time paid deal, it is a sunk cost. Again, you cannot retrieve that money you paid for the golf clubs back. e.“Our expansion project was to cost a total of $3.5 million. To date, we have spent $1.5 million and the project is 50% complete. Newly reported cost overruns have pushed the total cost of the expansion project to $4.5 million so we are abandoning the project.” Since the total cost of the expansion project was 3.5 million and that they have spent 1.5 million already and the project is 50% complete, it is to assume that the project will cost 4.5 million. The marginal costs are 1 million extra then the original cost (4.5-3.5). Therefore, it is wise they are abandoning the project because the MC exceeds MB by a million dollar...
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