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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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View Full Document 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.
The level that maximizes net benefit is 4 [answer 3 is also accepted]
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This note was uploaded on 08/02/2010 for the course ECON ECON 302 taught by Professor Arvanrad during the Spring '09 term at University of Illinois at Urbana–Champaign.
 Spring '09
 ARVANRAD
 Microeconomics

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