Question

14. Chris and Pat are identical twins, but Chris is clean and neat while Pat is a slob. They have the same tastes, being identical twins, and their Marginal Values of hamburgers, in terms of hamburgers consumed per month are as follows: a 1 2 3 4 5 6 7 MV $12 $10 $8 $5 $3 $1 $0 Because Pat is a slob, the only hamburger proprietor in town charges Pat $8 for hamburgers instead of $3, which the proprietor charges everyone else. How much would it benefit Pat per month to clean up?

Answer 1

The consumption is choosen where MR ( Marginal Values) = MC

Here as Pat is a slob, he is charged $8 per hamburger, means MC = $8,

So he is able to consume only 3 hamburgers because at 3rd hamburger MV = MC = 8

His benefit when he is a slob = 12-8 + 10-8 + 8-8 = 6

While, if Pat clean up, the price was reduced to $3, then he would buy 5 hamburger because MV(MR) = MC = 3

This benefit him.

After clean up, his benefit = 12-3 + 10-3 + 8-3 + 5-3 + 3-3 = 23

So his benefit from cleaning up = 23-6 = $17.

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