Suppose that Caroline stops by Burger Queen to have lunch. She feels that the fi

Question

Suppose that Caroline stops by Burger Queen to have lunch. She feels that the first hamburgers benefit is worth $8.50, the second hamburgers benefit is worth $6.00, the third hamburgers benefit is worth $4.25, and the fourth hamburgers benefit is worth $3.00. The first hamburger actually costs her $3.00, the second hamburger actually costs $3.50, the third hamburger actually costs $4.00 and the fourth hamburger actually costs $4.50.

a) Calculate her total benefit (TB), total cost (TC) and net benefits (NB) at each level of her hamburger consumption.

b) Determine her optimal hamburger consumption and show if her optimal amount of hamburgers maximizes her NB.

c) Obtain the marginal benefit (MB) and marginal cost (MB) of each hamburger.

d) Confirm your answer for to Part A by comparing NIB and MC at each hamburger.

Explanation / Answer

*Please upvote if possible.

a) Burgers. Total Benefit Total cost Marginal Benefit Marginal Cost Net Benefit 1 8.5 3 8.5 3 5.5 2 14.5 6.5 6 3.5 8 3 18.75 10.5 4.25 4 8.25 4 21.75 15 3 4.5 6.75 b) Caroline will consume until her marginal benefit is greter than or equal to the marginal cost. Therefore, she will consume three burgers at optimal level. Yes, at this leel net benefit is maximum at 8.25 c)Marginal Benefit = (TB)n-(TB)n-1 Marginal Cost = (TC)n-(TC)n-1 d) Yes at Q = 3 burgers MB> MC.

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