Tim is at a party.The 7^th beer that Tim consumes will produce an extra benefit of 10 cents and has an extra cost of zero.The cost-benefit principle predicts that Tim will A) realize he has had too much to drink and go home. B) drink the 7^th beer and continue until the marginal benefit of drinking another beer is zero. C) drink the 7^th beer and continue until the marginal benefit of drinking another beer is negative. D) not drink the 7^th beer. E) drink the 7^th beer and then stop.

Question

Quizplus · Accepted Answer

The cost-benefit principle states that a rational individual will continue to consume a certain good or service until the marginal benefit equals the marginal cost. In this scenario, the marginal cost of consuming one more beer is zero, while the marginal benefit is an extra benefit of 10 cents. Therefore, Tim will continue to drink until the marginal benefit is zero, which means he will drink the 7th beer. Option B is the correct choice as it states that Tim will drink the 7th beer and then continue until the marginal benefit is zero.

Tim Is at a Party