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Unit 6 Assignment 1 (U6A1) Managerial Economics OSexton Herzing University
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Unit 6 Assignment 1 (U6A1) Managerial Economics OSexton HerzingUniversity
Please complete the following exercises and problems from the textbook:
Technical problem 11 Chapter 3
11. APage
decision
|1 maker wishes to maximize the total benefit associated with
three activities, X, Y, and Z. The price per unit of activities X, Y, and Z is
$1, $2, and $3, respectively. The following table gives the ratio of the
marginal benefit to the price of the activities for various levels of each
activity:
Level of MBXPX MBYPY MBZPZ
activity
1 10 22 14
2 9 18 12
3 8 12 10
4 7 10 9
5 6 6 8
6 5 4 6
7 4 2 4
8 3 1 2
a. If the decision maker chooses to use one unit of X, one unit of Y, and
one unit of Z, the total benefit that results is $46.00 (10 + 22 + 14 =
46)
b. For the fourth unit of activity Y, each dollar spent increases total
benefit by $3.00. The fourth unit of activity Y increases total benefit
by $9.00.
c. Suppose the decision maker can spend a total of only $18 on the
three activities. What is the optimal level of X, Y, and Z? He will
have spent entirely on Y so the benefit is equal to 18 times
22, which equals 396. Why is this combination optimal? Because
it gives the decision maker the most benefit for that amount
of money. Why is the combination 2X, 2Y, and 4Z not optimal?
Because this combination is not optimize being that it has
lower marginal benefits than spending the entire allocation
on Y.
d. Now suppose the decision maker has $33 to spend on the three
activities. What is the optimal level of X, Y, and Z? If the decision
maker has $35 to spend, what is the optimal combination? Explain.
He or she would spend $33.00 on X and Z at various levels to
take full advantage of the more than one activity. Therefore,
10 is the highest marginal benefit to the price of the
activities for several of activities and 3 is the lowest at X.
Next Y is 22 and lowest is 1. Z highest is 14 and lowest is
two. Thus, this calculate will calculate a range of benefits.
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