Question

Suppose the price of a sweater is $30. Julia's marginal benefit for purchasing each additional sweater is given in the table below. Julia gets the most benefit from the first sweater and less benefit from each additional sweater. If Julia is behaving rationally, how many sweaters will she purchase? Marginal Benefit ($) 1St sweater 2nd sweater 3rd sweater 70 4sweater 5Sweater 6sweater th th th 50 43 32 28 ulia will purchase sweaters

Answer 1

a) Julia will purchase sweaters as long as the benefit she is receiving from a sweater is more than the cost. If the cost increased the benefit she will stop buying as a rational customer. She will purchase a total of 5 sweater.

The answer is 5.

b) 3 sweaters.

While selling 3rd sweater Allie has a marginal cost of 12 i.e. she is making a profit of 3 when she sells the 4th sweater the cost is 18 and the price is 15 so a loss of 3. She will only sell 3 sweaters.