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Determine marginal value

Assignment Help Macroeconomics
Reference no: EM1368517 , Length: 444 Words

The textbook claims that when people do not have to pay anything to use valuable resources, such as urban roadway space, they will continue using them until their value diminishes to zero. That often strikes people who have not yet become thoroughly familiar with the marginal way of thinking as wrong. Why would people choose to act in a way that caused the value of an activity - the value to themselves - to become zero? Their confusion arises from failure to realize that it marginal value that diminishes to zero and that it is very different from total or average value. Suppose you love chocolate chip cookies. It's 10 o'clock in the morning, you're quite hungry, and someone comes by selling freshly baked chocolate chip cookies. You peer into your psyche and discover your demand for chocolate chip cookies. You won't pay more than $3 for a cookie, and you don't want to eat more than four under any circumstances. (We rule out the possibility of storing them for eating later.) Here is your demand schedule:

Price Cookies
Demanded per Day

$3.00 1
1.50 2
0.40 3
0.10 4
0.00 4

a. How many cookies will you eat per day if the price is zero?
b. How much total value, measured in dollars per day, will you thereby obtain?
c. What will be the average value of the cookies to you, measured in dollars per cookie?
d. What will be the marginal value of cookies to you, measured in dollars per cookie, when they're free to you?

 

Reference no: EM1368517

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