Question 1 (b)(iii)

Does deciding by totals give the same number of burgers?

1 mark

Time to write
About 2 minutes
Topic
Economic models, incentives, efficiency and equity

Question

Question 1 (b)(iii) · 1 marks

The total benefits you get from consuming different quantities of burger each week are given in the table below.

Burgers (per week)Total benefit (equivalent in ₹)Marginal Benefit
00X
1180
2300
3384
4444
5480
6504
  1. Will the answer you gave for (ii) remain the same if you use the principle of optimization by levels? Explain.

Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

2 minfor 1 marks

Read from the question

  • ExplainA statement to explain: say what it means first, then build the answer around it.

What the paper leaves open

Refers to the answer for part (ii) of the same question, the price in (ii) being the one given there. As printed, the price used in this part equals the marginal benefit of one of the burgers, so the consumer is indifferent about buying that burger; this copy keeps that.

Write it in this order

  1. 1 Net benefit of each quantity compared, and the same answer explained 1 mark 2 min

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Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

The price from part (ii). Part (ii) of this question fixes the price at ₹60 a burger, and at that price, deciding one burger at a time, it finds the best choice to be 3 or 4 burgers a week. This part asks whether deciding by totals gives the same choice at the same ₹60.

Optimization by levels. Instead of looking at one more burger at a time, the consumer works out the total net benefit of every quantity, total benefit minus total spending, and picks the quantity with the largest total, as a firm does when it compares profit, total revenue minus total cost, across outputs.

Total net benefit at ₹60.

BurgersTotal benefit (₹)Spending at ₹60 (₹)Net benefit (₹)
0000
118060120
2300120180
3384180204
4444240204
5480300180
6504360144

Why the answer stays the same. The largest net benefit, ₹204, is reached at 3 and at 4 burgers, exactly the quantities found at the margin in (ii). This must happen: a total is the sum of its marginal parts, so the net benefit at any quantity is the sum of the gains (marginal benefit minus price) of the burgers up to it, 120 + 60 + 24 + 0 = 204 at four. The total keeps rising while each gain is positive, stays level at the fourth burger, whose gain is zero, and falls once the gains turn negative.

Answer. Yes, the answer stays the same. By levels the net benefit is highest, ₹204, at 3 and 4 burgers, the same choice as optimization at the margin; the two methods differ only in how the comparison is set out.

Where the 1 marks sit

#ComponentMarks
1Net benefit of each quantity compared, and the same answer explained1
Total1
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