Chapter 3: Balancing Benefits and Costs 1.In an effort to help him avoid the fre
ID: 1143408 • Letter: C
Question
Chapter 3: Balancing Benefits and Costs
1.In an effort to help him avoid the freshman 15, Jerry’s parents bought him a gym membership. To keep himself motivated Jerry wants to arrange personal trainer sessions for the semester. Jerry can hire the trainer for up to 21 sessions in increments of 3 sessions. The total benefit (TB) and total cost (TC) of the training sessions are in the table below. Calculate the net benefit (NB) for each of Jerry’s choices and use your answer to identify his best option.
Number of Sessions
Benefit
Cost
Net Benefit
0
0
0
3
115
90
6
245
174
9
396
252
12
525
324
15
563
390
18
608
450
21
649
504
Using the information from (1), what happens if the gym decides to charge Jerry a one-time non-refundable service fee of $25 for the use of a new member-trainer work-out area. How does this fee impact Jerry’s choice of the best action in (1) and why?
What do you think might happen to Jerry’s cost schedule if the gym charged a new fee of $5 per session for using the area? Do you think there might be a new best choice?
Number of Sessions
Benefit
Cost
Net Benefit
0
0
0
3
115
90
6
245
174
9
396
252
12
525
324
15
563
390
18
608
450
21
649
504
Explanation / Answer
1.
As per the above tabular data, the net benefit is maximized at 12 sessions where the net benefit is $201.
So, best option is to opt for 12 sessions and maximize the net benefit of $201.
2.
When $25 non-refundable fee is charged, then at each level of training session, total cost increases by $25 and following cost benefit table is created.
As per the above table, the profit is still maximized, when 12 training sessions are taken.
So, best option is to opt for 12 sessions and maximize the net benefit of $176.
3.
$5 per session is a variable cost and it will decrease the net profit by $15 at each 3-session level. So, net profit will decrease, but the best option will remain the same that is to opt for the 12 sessions.
Number of Sessions Benefit Cost Net Benefit 0 0 0 0 3 115 90 25 6 245 174 71 9 396 252 144 12 525 324 201 15 563 390 173 18 608 450 158 21 649 504 145Related Questions
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