Chapter 1A, Problem 2CTQ

To determine

The question requires us to:

• Determine whether the marginal costs to rise and marginal benefits to fall are common or not
• Determine the marginal benefit of first, second, and third practices
• Determine the marginal cost of the first, second, and third practices
• Determine the success of carrying an activity until its marginal cost equals the marginal benefit from it.

Explanation of Solution

Marginal cost is the additional cost when an extra unit of a good is produced, and marginal benefit is the additional benefit from that extra unit of good produced.

It is not common for marginal costs to rise and marginal benefits to fall. For example, a team is willing to take a three-month membership card for swimming. They have two options; $1000 for one-month membership and $1800 for a three-month membership. Their marginal cost of learning swimming is falling here with additional months, while their marginal benefits are increasing with additional months because they are becoming expert swimmers from beginners.

Marginal benefits from the first, second, and third practices in a day will increase because the team is gradually learning more in each practice.

The marginal cost for the first, second, and third practices in a day will either fall (if per practice charge is considered) or stay constant (for a fixed fee).

To get optimal utility, a person should carry out an activity until its marginal cost equals the marginal benefit from it. If the marginal benefit is more than the marginal cost, a person will have the incentive to practice more. If the marginal benefit is less than the marginal cost, a person will stop practicing such activity.