By: Micah Pollak, Indiana University Northwest
Pre-Test Question:

Chapter 10. Marginal Analysis

Math and Graphing Review
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You must read each slide, and complete any questions on the slide, in sequence.

Suppose your first cup of coffee each day gives you $4.00 in total benefit. Your second cup gives you an additional $3.00 in benefit and the third gives $2.00 in additional benefit. By the fourth cup of coffee, the caffeine really gets to you and you get no additional benefit. If the coffee shop you go to charges $2.50 for a cup of coffee, based on marginal analysis, how many cups would you drink?
Correct! The first two cups each provide more additional benefit than the additional cost.
Sorry, the correct answer is two cups. The first cup provides more additional benefit than cost ($4.00 vs. $2.50). The second cup also provides more additional benefit than cost ($3.00 vs. $2.50). The third cup provides less additional benefit than cost ($2.00 vs. $2.50). Therefore, you would buy the first two but not the third.
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      1.

      Suppose Dave is at an all-you-can-eat buffet and he’s already paid for the price of the meal. The table below shows the total benefit he gets from eating various numbers of plates of food.

      Plates of food eaten Total Benefit
      One $10
      Two $15
      Three $18
      Four $17
      Table

      Using marginal analysis, how many plates of food will Dave eat?
      Correct! Dave will eat three plates of food.
      Sorry, Dave will eat three plates of food. Dave will continue to eat additional plates of food as long as each additional plate increases his total benefit. His total benefit increases for the first three plates but goes down for the fourth, so he will eat only three plates.

      2.

      Jane is trying to decide how many TV shows she should watch tonight. She gets $10 of value from each TV show she watches. If she watches one show she gives up working on her math homework (which she values at $5). If she watches two, she also gives up her economics homework (which she values at $8). If she watches three then she also has to give up her biology homework (which she values at $12). Using marginal analysis, how many shows does she watch?
      Correct! Jane will watch two TV shows.
      Sorry, Jane will watch two TV shows. The first show gives her $10 of benefit while she loses only $5 from skipping her math homework. The second gives her $10 of benefit for only $8 from skipping her economics homework. She values her biology homework too much ($12) to skip it and watch a show.

      3.

      The table below shows the marginal benefit and marginal cost of each slice of pie John eats:

      Slices of pie eaten Marginal Benefit Marginal Cost
      One $3.00 $1.50
      Two 2.00 1.50
      Three 1.00 1.50
      Four 0.00 1.50
      Table

      Using marginal analysis, how many slices of pie will John eat?
      Correct! The marginal cost of each of the first two slices is lower than the marginal benefit. The marginal cost of the third slice of pie is higher than the marginal benefit.
      Sorry, the correct answer is two slices. The marginal cost of each of the first two slices is higher than the marginal benefit. The marginal cost of the third slice of pie is higher than the marginal benefit.

      4.

      Dave owns a home business where he makes paintings and sells them on the internet. Each week the first painting he makes sells for $100, the second $80, the third $60 and the fourth $40. If each painting costs him $75 in time and supplies, how many should he paint?
      Correct! Dave should make two paintings.
      Sorry, Dave should make two paintings. The first two give him more benefit than his $75 in costs. The third only gives him $50 in benefit and is not worth spending his time on.

      5.

      Marginal analysis is the method of analyzing “how much” type questions by comparing the additional (marginal) cost of doing one more with what?
      Correct! Marginal analysis compares the marginal cost and marginal benefit of each one choice at a time in order to analyze “how much” type questions.
      Sorry, the correct answer is the marginal benefit. Marginal analysis compares the marginal cost and marginal benefit of each one choice at a time in order to analyze “how much” type questions.