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HW2S_302 - Econ 302 Second Problem Set Solution Spring...

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Econ 302- Second Problem Set Solution Spring 2011-Ali Toossi Due: Wednesday, February 9 All problem sets should be prepared neatly and professionally. Problem sets should be stapled and should contain the following information on the right-hand corner of the page: your name , your section , homework number and date . Problem sets that are sloppy, torn from spiral-bound notebooks, or which are illegible, or unstapled, will be graded down. 1- p 0 10 20 30 40 50 -0.5 0 0.5 1 1.5 p 2- a. 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 take the action if MB = MC. Therefore the optimal number of acres sprayed is 4. [Answer 3 is also accepted] No. of Acres Sprayed Total Benefit Total cost Net Benefit 0 $0 0 0 1 12 7 5 2 22 14 8 3 30 21 9 4 37 28 9 5 42 35 7 1
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The level that maximizes net benefit is 4 [answer 3 is also accepted] b. The optimal answer does not change. The point where MB = MC is not affected by adding a fixed value to total cost (or for that matter to total benefit). c. No. of Acres Sprayed Marginal Benefit Marginal cost 1 st unit 12 10 2 nd unit 10 10 3 rd unit 8 10 4 th unit 7 10 5 th unit 5 10 The optimal level here is 2. 3- a. 5 . 0 16 - = x MB & x MC 2 = . The optimum is where MB = MC. x x 2 16 5 . 0 = - 2 3 8 x = 3 8 x = 3 64 x = x* = 4 b.
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