Question

Purpose of the following guestion: Demonstrate knowledge of basic economic definitions and ability to use data to find optimal solution. (10 points) Your total benefits from consuming different quantities of gasoline each week are shown in Table 1. Table 1: Benefits of Consuming Gasoline Gallons per Week Total Benefit Marginal Benefit 15 21 26 30 2 36 a. Complete the marginal benefit column starting with the step from 0 gallons to 1 gallon per week. b. The price of gasoline is $4 per gallon. Use the Principle of Optimization to find your optimal number of gallons of gas to consumer each week.

Answer 1

Marginal benefit is the satisfaction derived from consumption of one subsequent unit of the product.

For a consumer price per gallon is the marginal cost per gallon, so the optimal number of gallons each week will be the number of gallons consumed when the price $4 or marginal benefit is 4.

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