It is the night before your economics final exam and you must decide how many ho
ID: 1132156 • Letter: I
Question
It is the night before your economics final exam and you must decide how many hours to study. The total benefits column shows how many more points you expect to earn because of increased knowledge. The cost column shows how many points you will lose because of careless errors due to lack of sleep. (The “marginal” columns show the effect of each additional hour spent studying. These marginal numbers are calculated by taking the difference within a column from one row to the next row.)
Hours Spent Studying
Total Benefit
Marginal Benefit
Total Cost
Marginal Cost
0
0
--
0
--
1
10
10
0
0
2
16
6
3
3
3
20
4
8
5
4
20
0
15
7
a. If you study in an optimal way, how many more points will you earn on the test?
b. Explain how you can find the optimal number of hours by using the marginal benefits and marginal costs columns.
Hours Spent Studying
Total Benefit
Marginal Benefit
Total Cost
Marginal Cost
0
0
--
0
--
1
10
10
0
0
2
16
6
3
3
3
20
4
8
5
4
20
0
15
7
Explanation / Answer
(a) Optimal is when marginal benefit = Marginal cost
The more points you will earn on the test is (16-3)= 13 because optimal occurs at 2 hours of studying.
(b) Optimal number of hours is 2 hours where MB=MC. Because if you spend 3 hours on studying then, MC>MB ,
Because if you spend
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