Neal is a coffee drinker. At the local coffee shop, the price of 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.
a. The marginal benefit of the first cup is $
b. The marginal benefit of the second cup is $
c. The marginal benefit of the third cup is $
d. The marginal benefit of the fourth cup is $
e. The marginal benefit of the fifth cup is $
f. Neal should consume _____ cups of coffee per day.
The correct answer and explanation is :
To determine Neal’s marginal benefit from consuming each cup of coffee, we need to understand that marginal benefit refers to the additional satisfaction or utility Neal gains from consuming one more unit of a good or service. It’s calculated by subtracting the total benefit of consuming n-1 cups from the total benefit of consuming n cups. In this scenario, Neal’s total benefits from drinking coffee are provided, and the price per cup is $3.
a. The marginal benefit of the first cup is $
The marginal benefit of the first cup is equal to the total benefit of consuming one cup since there’s no previous consumption to compare it to. If the total benefit of the first cup is $8, then the marginal benefit is $8.
b. The marginal benefit of the second cup is $
The marginal benefit of the second cup is calculated by subtracting the total benefit of consuming one cup from the total benefit of consuming two cups. If the total benefit of the second cup is $14, then:
c. The marginal benefit of the third cup is $
Similarly, the marginal benefit of the third cup is the difference between the total benefits of consuming three and two cups. If the total benefit of the third cup is $18, then:
d. The marginal benefit of the fourth cup is $
The marginal benefit of the fourth cup is the difference between the total benefits of consuming four and three cups. If the total benefit of the fourth cup is $20, then:
e. The marginal benefit of the fifth cup is $
The marginal benefit of the fifth cup is the difference between the total benefits of consuming five and four cups. If the total benefit of the fifth cup is $21, then:
f. Neal should consume _ cups of coffee per day.
Neal should consume coffee up to the point where his marginal benefit equals the price he pays per cup. In this case, the price is $3. From the calculations above, the marginal benefits are:
- First cup: $8
- Second cup: $6
- Third cup: $4
- Fourth cup: $2
- Fifth cup: $0.5
Neal’s marginal benefits exceed the price of $3 for the first three cups but fall below it for the fourth and fifth cups. Therefore, to maximize his net benefit, Neal should consume three cups of coffee per day.
Explanation:
In economics, the principle of marginal analysis suggests that consumers should continue to consume a good or service up to the point where the marginal benefit equals the marginal cost (price). Consuming beyond this point leads to a net loss in utility, as the cost outweighs the benefit. In Neal’s case, the marginal benefits of the first three cups ($8, $6, and $4) are greater than the price of $3, indicating that each cup adds positive utility. However, the marginal benefits of the fourth and fifth cups ($2 and $0.5) are less than the price, suggesting that consuming these cups would not provide additional satisfaction proportional to their cost. Thus, limiting consumption to three cups aligns with the goal of maximizing net benefit.