ECNS 105
Problem Set 1
Marginal Decision Making
Name _________________________
Economics is a subject best learned through consistent practice and engagement with the
concepts, rather than rote memorization and last-minute efforts. If you rush through the
assignments just to get the answers, you won’t find them helpful for learning economics. To get
the most learning from the problem sets, complete them well in advance of their due date and
use them as one means of practice in economics and as a diagnostic tool to assess your
understanding of each ECNS 101 topic covered during the previous week’s ECNS 101 classes.
1. Imagine it’s a hot day and a tall iced coffee sounds great. As a budding economist, you
decide to make yourself a table showing how much you are willing to pay for each iced
coffee. Use this information and the table below to answer parts a through c.
1st Coffee
2nd Coffee
3rd Coffee
4th Coffee
5th Coffee
Your willingness to
pay for iced coffee
$11.00
$8.00
$5.00
$3.00
$1.00
a. Graph your willingness to pay for iced coffee on the axes below. Be sure to label the
axes carefully.
b. Suppose that the price of a tall iced coffee is $2. Graph this price in your figure above
(hint: it will be a horizontal line).
c. What is the marginal cost of a glass of iced coffee?
d. According to the marginal decision rule, how many cups of iced coffee would you be
willing to purchase when the price is $2 each? Briefly explain.
e. Now assume the price of iced coffee rises to $5 per glass. Graph this price in your figure
above.
f. According to the marginal decision rule, how many cups of iced coffee would you be
willing to purchase when the price is $5 each? Briefly explain.
2. Pauley loves hot dogs. The left side of the table below shows Pauley’s total benefits (or total
willingness to pay) associated with eating hot dogs during a night. The table on the right shows
Pauley’s marginal benefit
Number of
Hot Dogs
1
Total Benefit
Hot Dog
$7.00
1st
2
$13.00
2nd
3
$18.00
3rd
4
$22.00
4th
5
5th
Marginal
Benefit
$7.00
$3.00
.
a. Complete the blank cells in the table.
b. Suppose that hot dogs are priced at $5.50. How many hot dogs will Pauley choose to
buy in a night?
c. Suppose that hot dogs are priced at $3.50. How many hot dogs will Pauley choose to
buy in a night?
d. What is the difference between total benefit and marginal benefit?