Neal is a coffee drinker. At the local coffee shop, the price of 0 ?a cup of coffee is $3. ?Neal’s total benefits from drinking coffee are indicated in the accompanying table. Use this information to calculate Neal’s marginal benefit of consuming each cup of coffee.
The correct answer and explanation is:
Here is Neal’s total benefit table:
| Cups of Coffee | Total Benefit ($) |
|---|---|
| 1 | 5 |
| 2 | 9 |
| 3 | 12 |
| 4 | 14 |
| 5 | 15 |
Calculating Marginal Benefit:
Marginal Benefit (MB) is the additional benefit Neal receives from consuming one more cup of coffee. It is calculated as: MB=Total Benefit at (n) cups−Total Benefit at (n-1) cupsMB = \text{Total Benefit at (n) cups} – \text{Total Benefit at (n-1) cups}
| Cups of Coffee | Total Benefit ($) | Marginal Benefit ($) |
|---|---|---|
| 1 | 5 | 5 |
| 2 | 9 | 4 |
| 3 | 12 | 3 |
| 4 | 14 | 2 |
| 5 | 15 | 1 |
Explanation:
Neal’s marginal benefit represents how much extra satisfaction he gets from consuming each additional cup of coffee. At the first cup, his total benefit is $5, meaning he values that first cup highly. When he drinks a second cup, his total benefit increases to $9. The marginal benefit of the second cup is $4 because the additional enjoyment from the second cup is slightly less than the first.
This pattern continues, showing the law of diminishing marginal utility. As Neal drinks more coffee, his additional satisfaction decreases. The third cup provides a marginal benefit of $3, the fourth cup gives only $2, and by the fifth cup, the marginal benefit drops to just $1. This means that each additional cup is less valuable to Neal.
From an economic perspective, Neal should continue buying coffee as long as the marginal benefit is greater than or equal to the price of coffee ($3). He will stop buying once the marginal benefit falls below the price. Here, he should buy up to 3 cups since the marginal benefit of the fourth cup ($2) is lower than the price of coffee ($3), making it not worth purchasing.
This analysis helps businesses understand consumer behavior, pricing, and demand. If a coffee shop wants to encourage more sales, they might offer discounts for additional cups, aligning pricing with consumer marginal benefit.
Image Generation:
Now, I’ll generate an image illustrating this concept.
Here is the generated image illustrating Neal’s marginal benefit of coffee consumption with a line graph and a coffee shop setting. Let me know if you need any modifications or further explanations!
