Question

41. You're deciding whether to install a $400 moonroof and a $200 security system in your car. Suppose the marginal benefit from the moonroof is $350 while the marginal benefit from the security system is $300. The economic decision rule dictates that you should A. purchase only the moonroof because that will provide you with the greatest margina benefit B. purchase only the security system because its marginal benefit exceeds its marginal cost. C. purchase both options because the combined cost of both is less than the combined benefit D. not purchase either because the benefits of each do not exceed the costs.

Answer 1

Optimal condition is when Marginal benefit equals marginal cost.

For moonroof , Marginal benefit is less than marginal cost (i.e 350<400) so it is not beneficial to purchase moonroof.

For security system , marginal benefit exceeds marginal cost (i.e 300>200) ,so it beneficial to purchase security system.

Therefore, the economic decision rule dictates that you should purchase only the security system because its marginal benefit exceeds its marginal cost. Hence, option(B) is correct.