Econ 302 Second Problem Set Solution
Spring 2010Ali Toossi
Due: Wednesday, February 10
Solution to the problems from the textbook.
Chapter 1: Problems
Answer to problem 11.
The benefit of the 1st gigabyte is $800, the 2nd is $400, the 3rd is $200, the 4th is $100, the 5
th
is
$50, the 6
th
is $25, the 7
th
is $12.50 and the 8
th
is $6.25. You should purchase 4 gigabytes. At
higher levels of benefit, the benefit is less than the cost. At lower levels, benefit exceeds the cost.
Price
800.00
400.00
200.00
100.00
1
2
3
4
5
6
7
8
9 Memory (GB)
Answer to problem 13.
False.
The fact that she would have chosen the party before she bought her ticket means that she
prefers a party to an event that costs $40. Now her choice is between two events that she can
attend with no further payment.
Another way to look at this: The problem says that before buying the ticket she would have
chosen the party over the concert. This means B
P
> B
C
– 40. After buying the ticket, its cost is
sunk and she would choose to go to part if B
P
> B
C
. This is obviously not necessarily true.
Answer to problem 16.
True. If you got $15,000 for the Taurus and paid that plus $5,000 more for the Camry, the entire
Camry expense would have cost you $25,000. Since you have already shown that you did not
want the Camry for $25,000, why would you spend that for it now?
Another way to look at this: you chose to buy Ford Taurus over the Camry. This means B
F

20,000 > B
C
– 25,000
B
C
– B
F
<5,000. So if you sell your Ford, you have to pay another 5000
to buy a Camry, but according to the inequality you prefer Camry to Ford by less than 5000.
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Solution to Additional problems
Answer to additional problem 1.
a.
Use marginal analysis to determine how many acres the farmer should spray.
No. of Acres
Sprayed
Marginal
Benefit
Marginal
cost
1
st
unit
12
7
2
nd
unit
10
7
3
rd
unit
8
7
4
th
unit
7
7
5
th
unit
5
7
You are indifferent about the fourth unit but we set a rule that you consume the
last unit for which MB = MC. Therefore the optimal number of acres sprayed is
4. [Answer 3 is also accepted]
Use maximization of the net benefit to determine how many acres the farmer should
spray.
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 Spring '09
 ARVANRAD
 Economics, Microeconomics, Cost curve, Acres Sprayed

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