Attempts: Average: 11 4. Dialogue: Thinking at the margin Consider the following
ID: 1163686 • Letter: A
Question
Attempts: Average: 11 4. Dialogue: Thinking at the margin Consider the following dialogue between Lorenzo, a student in an introductory economics class, and Lorenzo's teaching assistant, Sharon LORENZO: Hi, Sharon. I was very confused by what the professor was lecturing on today in class. The professor said that in real life many people do not use marginal analysis and mistakenly look at average costs and benefits when making decisions. What did she mean by that? SHARON: Hi, Lorenzo. A lot of students have had questions about this topic. Let's go over the concept together. Marginal analysis involves examining the additional costs and benefits of an activity. Suppose you are deciding how many slices of cake to eat. Some people may look at the costs and benefits of eating an entire cake. Margine-analysis says you should consider the costs and benefits of each slice individually Suppose you have eaten six slices of cake. You are considering eating a seventh slice. If the marginal benefit of the seventh slice is $18 and the marginal cost is $4, then you should an additional slice. However, if the marginal benefit of the seventh slice is $8 and the marginal cost is $19, then you should an additional slice. LORENZO: I seel So following this logic, I should continue to eat cake as long as the marginal benefits are the marginal costs. If the marginal cost of the next slice of cake is greater than the marginal benerit, I shouldY SHARON: I think you get it now. While this is a very simple example, it does show how marginal analysis can help prevent you from eating too much cake and getting sick Grade It Now Save & Continue Continue without savingExplanation / Answer
Fill Ups.
1. Eat. This is because marginal benefit of the additional slice is more than the marginal cost of the additional slice and thus it should be eaten.
2. Not Eat. This is because the marginal cost of the additional slice now exceeds the margimal benefit derived from eating the additional slice and thus it should not be eaten.
3. Greater Than. One should continue eating as long as marginal benefit exceeds the marginal cost.
4. Stop eating. As the marginal benefit from next slice is smaller than marginal cost of the next slice, one should stop eating.
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