Pat and Chris are vying for Jordan's heart,and both value winning Jordan's affection at $500.Jordan will choose between them based solely on which one spends the most money on gifts,movies,dinner and other enticements.Pat and Chris are fully aware of each other and of each other's spending.Spending must be in increments of $1 or more.
Pat thinks that there is a 50% chance that Chris will continue to spend more on Jordan regardless of the current level of spending.Suppose that Pat has now spent $250 on Jordan and Chris has spent $251.If Pat were to increase spending to $252 the marginal cost of that expenditure would be ___ while the expected marginal benefit is ____.

Question

Quizplus · Accepted Answer

If Pat were to increase spending to $252, Chris would have to spend $253 or more to win Jordan's affection, which means that Pat will win if Chris does not spend more. 
The marginal cost of spending an additional dollar for Pat is $1, while the expected marginal benefit is $500*50%=$250. Therefore, the best choice for Pat is to increase spending to $252.

Pat and Chris Are Vying for Jordan's Heart,and Both Value