Ray loves going to the movie theater. There is always something Ray is willing t
ID: 1253822 • Letter: R
Question
Ray loves going to the movie theater. There is always something Ray is willing to see (or watch for a second or third time!). The table on the left shows Ray's total benefits (or total willingness to pay) associated with seeing movies at the movie theater for a period of one month. The table on the right shows Ray's marginal benefit. Notice that some of the information is missing from the "Marginal Benefit" column.Total Number of Movies Total Benefit
1 $8.00
2 $14.50
3 $19.25
4 $22.00
5 $23.50
Movie Marginal Benefit
1st $8.00
2nd $ -
3rd $ -
4th $ -
5th $1.50
1) Suppose that movie tickets in Ray's town are priced at $5.00. How many movies will Ray choose to see in a month?
2) If the local theater in Ray's town lowers its price to $4.50, how many movies will Ray choose to view?
3)Assume that Ray's brother takes a job at the movie theater and is allowed to admit his family members at no charge. In this case, how many movies would Ray choose to see a month?
Explanation / Answer
It may help to first complete the marginal benefit table Total Number of Movies Total Benefit 1 $8.00 2 $14.50 3 $19.25 4 $22.00 5 $23.50 Movie Marginal Benefit 1st $8.00 2nd $6.50 3rd $4.75 4th $2.75 5th $1.50 Now, the quantity of movies he'll watch will be where marginal cost (the price) is equal to his marginal benefit. This would be somewhere between 2 and 3 movies, but since the marginal benefit of the 3rd movie is less than the cost (and since he'd have to pay for the full $5 of the 3rd movie), he would only see 2. If the price lowered to $4.50 the 3rd movie would still provide him with a higher marginal benefit than the cost, so he would see 3. If his brother takes the job at the theater, and he is allowed to watch movies for free he will continue watching movies until the marginal benefit is less than zero. Based on this table, he would watch 5 movies.
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