Scenario: Assume that there are five apartments located at different distances from an individual's place of work-very close, close, far, very far, and extremely far. The individual makes his choice by studying the change in costs as he moves farther from his place of work. He has to choose between renting one of the five apartments. The movement from apartment Very Close to Close has a marginal cost of −$60, a movement from apartment Close to Far has a marginal cost of −$40, a movement from apartment Far to Very Far has a marginal cost of −$10, and a movement from apartment Very Far to Extremely Far has a marginal cost of $20.
-Refer to the scenario above.Which of the following is used to arrive at the optimum decision in the scenario?
A) Optimization using total value
B) Before and after comparisons
C) Total net benefit approach
D) Principle of Optimization at the Margin

Question

Quizplus · Accepted Answer

The principle of optimization at the margin is used to arrive at the optimum decision in this scenario. This principle suggests that one should continue to allocate resources to an activity as long as the marginal benefit exceeds the marginal cost. In this case, the individual should choose the apartment that provides the highest net benefit, considering the marginal costs of moving to each apartment. The optimum decision can be found by comparing the marginal benefits and costs of each movement and selecting the one that provides the highest net benefit.

Scenario: Assume That There Are Five Apartments Located at Different