Question

Maria can purchase shirts for ​$21.00 each. She considers the benefit of one shirt to be ​$40.00​, but with each additional shirt she purchases, the benefit decreases by ​$5. According to the Principle of Optimization at the​ Margin, Maria will purchase _____ shirts.

Answer 1

Answer:

4 shirts

Explanation:

Principle of Optimization at the​ Margin states that the individual maximises utility when consuming a prpduct as long as the marginal benefit exceeds to marginal cost. If marginal cost is greater than the benefit the consumer will find another alternative.

In this instance Maria sees the short as value of $40, while sale price is $21

So when she buys the first shirt her perceived cost is now 40- 5= $35

For the second shirt perceived cost is 35-5= $30

For the third shirt perceived cost is 30-5= 25$

For the fourth shirt it is 25-5= $20

At this stage cost is slightly higher than the benefit and she will stop buying shirts.