You need to repair your car. An hour of repair time costs $100 and you have a bu
ID: 1146814 • Letter: Y
Question
You need to repair your car. An hour of repair time costs $100 and you have a budget of $1,000. The total benefit of HE hours of engine work is BE(HE) = 500HE 30(HE) 2 , which has marginal benefit MBE(HE) = 50060HE. The total benefit of HB hours of body work is BB(HB) = 400HB 20(HB) 2 , which has marginal benefit MBB(HB) = 400 40HB. (a). How many hours of engine work should you get? (b). How many hours of body work should you get?
You need to repair your car. An hour of repair time costs $100 and you have a budget of $1,000. The total benefit of HE hours of engine work is Be(He) = 500HE-30(HE)2, which has marginal benefit MBE (HE) 500-60HE. The total benefit of hours of body work is Be(HB-400HB-20(HB)2, which has marginal benefit MBB(HB) 400 -40HB a). How many hours of engine work should you get? (b). How many hours of body work should you get?Explanation / Answer
At the efficient level of output, Marginal Benefit should equal marginal cost
Thus, 500 - 60He = 100
which gives us He = (500 -100)/60 = 6.67
Therefore, 6.67 hours of engine work one should get at efficient level.
Similarly, we can equate marginal benefit of body work to marginal cost of body work
Now, we assume that the marginal cost of body work is 0
Thus, 400 - 40Hb = 0
Hb = 400/40 = 10
Thus, 10 hrs of body work one should get at efficient level.
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