Question

Suppose the marginal costs of reading are constant at $6 per hour, while the marginal benefits of reading decline (over time) as more reading is performed. In particular, suppose the following table contains the marginal benefit associated with various levels of hours spent reading. Time Spent Reading (Hours) Marginal Benefits (Dollars per hour)

Answer 1

Represent the graph as follows: Marginal Benefit Curve Marginal Cost, Marginal Benefit ($ per hour of reading per week) Efficient point Marginal Cost curve 90 5 10 15 20 25 30 35 40 45 50 Reading (Hours per week) At efficient point, marginal benefit is equal to 6 and reading hours is 18. At any level of reading below the efficient level, the marginal benefit curve is above the marginal cost curve. This means that marginal benefits of reading are greater than the marginal costs of reading and therefore one can increase net benefit by reading for more hours. On the other hand, at any level of reading greater than the efficient amount, the marginal benefit curve is below the marginal cost curve. This means that the marginal benefits of reading are less than the marginal costs of reading and therefore, you can increase net benefits by reading for fewer hours. Only, at the efficient point, where marginal benefits are equal to the marginal costs of reading are net benefits maximized.