1. You are planning a trip to Miami, a 1,000-mile round-trip journey.
Except for the monetary cost, you
are completely indifferent between taking your car and the bus.
From the Internet you learn that
someone with your type of car incurs the following costs during a year in which the car is driven
Fuel and Oil
These costs seem to represent accurate estimates of your own costs, especially the insurance figure,
since last month you bought a new type of policy that charges you 10 cents for every mile you put on
your odometer during the year.
At what roundtrip bus fare would you be indifferent between taking the
bus and driving your car?
e. None of the above is correct.
As in the examples discussed in class, Fuel & Oil and Maintenance expenses vary with
mileage, but unlike those examples, insurance now also varies with total mileage.
Together, the mileage-
related costs total $7,000 for a each 10,000 miles driven, so the marginal cost of driving your car is $0.70
per mile, which translates into a roundtrip cost of $700.
2. You purchase your CDs through MBG Music Service, which offers you any three CD's free provided
you choose a total of at least four CDs. (The least expensive CDs are the ones that you pay for.) The CD's
you definitely want and their prices are:
The Burt Bacharach Experience
Soundtrack to the
World's Scariest Police Chases
William Shatner Sings Rock Standards
Unaccompanied Cello Suites
Kenny G’s Greatest Hits
What is the marginal cost of
selecting Linkin Park’s
Minutes to Midnight
($15) as well?
None of the above.
Minutes to Midnight
from your freebie list, so adds $12 to your bill.
3. You have paid $10 to eat dinner at an all-you-can-eat buffet. You should continue eating until
you have finished eating “seconds”.
b. the benefit you receive from additional food equals $10.
c. you have eaten all that you comfortably can.
d. your average cost per serving falls below $10.
e. the benefit from additional food equals $0.
. Since the marginal cost of additional food is 0, you should continue eating until the marginal
benefit is also 0.
4. Fred and Alma are motor mechanics. Alma can replace 4 clutches per day or 12 sets of brakes. Fred