The Logic of Maximizing Behavior and Maximizing in the Marketplace
The Logic of Maximizing Behavior
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Suppose Ms. Phan still faces the exams in economics and in accounting, and she still plans to spend a total of 5 hours studying for the two exams. However, she revises her expectations about the degree to which studying economics and accounting will affect her scores on the two exams. She expects studying economics will add somewhat less to her score, and she expects studying accounting will add more. The result is the table below of expected total benefits and total costs of hours spent studying economics. Notice that several values in the table have been omitted. Fill in the missing values in the table. How many hours of study should Ms. Phan devote to economics to maximize her net benefit?
|
Hours studying economics |
0 |
1 |
2 |
3 |
4 |
5 |
|
Total benefit |
0 |
14 |
24 |
30 |
|
32 |
|
Total cost |
0 |
2 |
8 |
|
32 |
50 |
|
Net benefit |
0 |
12 |
|
12 |
0 |
-18 |
Now compute the marginal benefits and costs of hours devoted to studying economics, completing the table below.
Draw the marginal benefit and marginal cost curves for studying economics (remember to plot marginal values at the midpoints of the respective hourly intervals). Do your curves intersect at the "right" number of hours of study - the number that maximizes the net benefit of studying economics?