Question

Gallons per Week Total Benefit Marginal Benefit
0 0 X
1 8
2 15
3 21
4 26
5 30
6 33
7 35
8 36

a. Complete the marginal benefit column.
b. The price of gasoline is $4 per gallon. Use the Principle of Optimization at the Margin to find an optimal number of gallons of gas to consume each week.

Answer 1

Answer:

Marginal Benefit = 7,6,5,4,3,2,1 .

Optimal  Equilibrium = 4 units of consumption

Explanation:

Marginal Benefit is addition to total benefit when an additional unit is consumed.

Marginal Benefit = Total Benefit @ n - Total Benefit @ n-1

MB = 15-8 = 7

21- 15 = 6

26 - 21 = 5

30 - 26 = 4

33 - 30 = 3

35 - 33 = 2

36 - 35 = 1

Optimal Equilibium is where Marginal Benefit = Price . Such because : before that - MB > Price , increasing consumption is better for consumer. MB< Price , decreasing consumption is better for consumer.

In this case : Price i.e $4 = MB 4 at 4th gallon . So , this is optimal equilibrium.