Joe Higgins is thinking about how much time to spend studying for a biology exam tomorrow. Using
Question:
Joe Higgins is thinking about how much time to spend studying for a biology exam tomorrow. Using ?utility units? he measures the benefits and costs of study; his calculations are shown in the following table.
1. Fill in the fourth row for net benefit in the table. Use the midpoint convention to emphasize that the net benefit is a marginal value showing the gain as hours spent increase by one-hour increments.
2. Using a graph similar to Panel (a) of Figure 6.1 "The Benefits of Studying Economics" show the marginal benefit curve and verify that the area under the curve at 3 hours of study corresponds to the total benefit of that much study. (Remember that marginal values are plotted at the midpoints of the corresponding intervals on the horizontal axis.)
3. Use a graph similar to Panel (b) of Figure 6.1 "The Benefits of Studying Economics" to show the marginal cost curve and verify that the area under the curve at 3 hours of study corresponds to the total cost of that much study.
4. Use a graph similar to Panel (a) of Figure 6.6 "Using Marginal Benefit and Marginal Cost Curves to Determine Net Benefit" to combine the marginal benefit and marginal cost curves you drew in parts (a) and (b).
5. Based on the marginal decision rule, how many hours should Joe spend studying for his biology exam?
Introduction to Corporate Finance
ISBN: 978-0324657937
2nd edition
Authors: Scott B. Smart, William L Megginson