Nowadays Essay

474 WordsApr 21, 20142 Pages
 CHAPTER 1 Answers to PROBLEMS IN THE Working with Numbers and Graphs SECTION 1. Suppose the marginal costs of reading are constant and the marginal benefits of reading decline (over time). Initially, the marginal benefits of reading are greater than the marginal costs. Draw the marginal benefit curve and marginal cost curve of reading and identify the efficient amount of reading. Next, explain why the efficient point is the point at which the net benefits of reading are maximized. In the graph shown above, the vertical axis measures the marginal costs and benefits of reading, while the horizontal axis measures quantity, i.e., the time spent on reading. The horizontal MC curve shows the constant marginal cost of reading. The downward sloping marginal benefit (MB) curve shows that the marginal benefit of reading declines over time. Initially, at point A, the marginal benefits of reading are greater than the marginal costs; MB > MC. So there are net benefits from reading further. In the figure, the marginal benefits of studying equal the marginal costs at q2, which is the efficient length of time to read in this situation. If the time spent on reading is more than q2, the marginal costs of reading are greater than the marginal benefits, and so reading beyond q2 is not worthwhile. At q2, net benefits are maximized. In short, efficiency, which is consistent with MB = MC, is also consistent with maximizing net benefits. 2. Using the diagram you drew in question 1, lower the marginal costs of reading and identify the new efficient amount of reading. Also, identify the additional net benefits derived as a result of the lower marginal cost of reading. With a lower cost of reading, the marginal cost curve shifts downward from MC1 to MC2. The new marginal cost curve intersects the marginal benefit (MB) curve at B. At point B, net benefit is maximized. The

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