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Keyoldmtessayp2 - Essay question#1 Midterm#1 A Imagine that Mandy is now doing shopping with her boyfriend in a department store She is deciding

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Essay question #1, Midterm #1 z A) Imagine that Mandy is now doing shopping with her boyfriend in a department store. She is deciding how many cosmetic products she should purchase to maximize her beautifulness in a dancing party tonight. The following list summarizes her total benefits and costs for the number of cosmetic product(s) she purchases. 160 435 8 140 430 7 120 420 6 100 400 5 80 360 4 60 300 3 40 220 2 20 120 1 0 0 0 Total cost ($) Total benefit ($) Unit(s) of cosmetic product purchased
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Solution to Essay question #1 (1) z Based on the above table, how many unit(s) of cosmetic product should Mandy purchase? (5 marks) z It seems logical to find a specific unit of cosmetic products purchased where the difference between total benefit and total cost is the greatest z If this is true, the optimal unit of cosmetic products will be either 5 or 6 units z However, as we have discussed before. In Economics, we look at marginal values to decide whether to pursue for an action z Cost-benefit principle z We pursue for a next unit of action if and only if the (marginal) benefit is greater than the (marginal) cost
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z Therefore, to answer this part, we will need to compute the marginal benefits and marginal costs 20 160 5 435 8 20 120 20 420 6 20 100 40 400 5 20 80 60 360 4 20 60 80 300 3 20 40 100 220 2 20 20 120 120 1 0 0 0 0 0 Marginal cost ($)
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This note was uploaded on 09/06/2010 for the course FBE ECON1001 taught by Professor Dr.demurger during the Fall '08 term at HKU.

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Keyoldmtessayp2 - Essay question#1 Midterm#1 A Imagine that Mandy is now doing shopping with her boyfriend in a department store She is deciding

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