Reference no: EM131651897
1. A decision maker is choosing the levels of two activities, A and B, so as to maximize total benefits under a given budget. The prices and marginal benefits of the last units of A and B are denoted PA, PB, MBA, and MBB.
a. If PA = $20, PB = $15, MBA = 400, MBB = 600, what should the decision maker do?
b. If PA = $20, PB = $30, MBA = 200, MBB = 300, what should the decision maker do?
c. If PA = $20, PB = $40, MBA = 300, MBB = 400, how many units of A can be obtained if B is reduced by one unit? How much will benefits increase if this exchange is made?
d. If the substitution in part c continues to equilibrium and MBA falls to 250, what will MBB be?
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Maximize total benefits under a given budget
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