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The prices and marginal benefits of the last units of a and

1. A decision maker is choosing the levels of two activities, A and B, so as to maximize total benefits under a given budget. The prices and marginal benefits of the last units of A and B are denoted P_A, P_B, MB_A, and MB_B.

a. If P_A = $20, P_B = $15, MB_A = 400, MB_B = 600, what should the decision maker do?

b. If P_A = $20, P_B = $30, MB_A = 200, MB_B = 300, what should the decision maker do?

c. If P_A = $20, P_B = $40, MB_A = 300, MB_B = 400, how many units of A can be obtained if B is reduced by one unit? How much will benefits increase if this exchange is made?

d. If the substitution in part c continues to equilibrium and MB_A falls to 250, what will MB_B be?

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