Exhibit 5-6
-Exhibit 5-6 shows Andy's marginal benefit from latte consumption. If the price of one cup of latte is $2.50, then which of the following is true?
A)Andy will consume 1 cup of latte.
B)Andy will consume 2 cups of latte.
C)Andy will consume 3 cups of latte.
D)Andy will consume 4 cups of latte.
E)Andy will not consume any latte.

Question

Exhibit 5-6 
-Exhibit 5-6 shows Andy's marginal benefit from latte consumption. If the price of one cup of latte is $2.50, then which of the following is true?
A)Andy will consume 1 cup of latte. 
B)Andy will consume 2 cups of latte. 
C)Andy will consume 3 cups of latte. 
D)Andy will consume 4 cups of latte. 
E)Andy will not consume any latte.

Quizplus · Accepted Answer

Andy will consume 2 cups of latte because at a price of $2.50, his marginal benefit equals $2.50, which is the same as the price. Consuming 2 cups of latte maximizes his total surplus (the difference between his total benefit and total cost). If he were to consume a third cup of latte, his marginal benefit would be less than the price, resulting in a reduction in his total surplus.

Exhibit 5-6 -Exhibit 5-6 Shows Andy's Marginal Benefit from Latte Consumption. If