1. The economic surplus from washing your dirty car is the benefit you receive from doing so ($6) minus your reservation price for doing the job ($3.50), or $2.50.

2. The benefit of adding a pound of compost is the extra revenue you’ll get from the extra tomatoes that result. The cost of adding a pound of compost is 50 cents. By adding the fourth pound of compost you’ll get 2 extra pounds of tomatoes, or 60 cents in extra revenue, which more than covers the 50-cent cost of the extra pound of tomatoes, so the corresponding revenue increase (30 cents) is less than the cost of the compost. You should add 4 pounds of compost and no more.

Chapter 2

2a. John’s economic surplus from the additional memory is equal to $55-$50=$5.

2b. Suppose John benefited by $10 from the first additional megabyte, $9 from the second, $8 from the third, $7 from the fourth and so on down to $1 from the 10^th additional megabyte. His total benefit from ten additional megabytes would then be $55, just as given in the problem. But the benefit of adding the 10^th megabyte -- $1 – would be less than its $5 cost, the statement is FALSE. John should not have added more memory. In fact, he should have added less.

5. First you calculate the marginal benefit of an additional hour spent catching crabs and an additional hour spent gathering coconuts.

Hours spent catching crabs	Total number of crabs caught
0	0
1	8
2	17
3	23
4	28
5	31
6	34
7	37
8	39

  

Time spent	Marginal benefit (crabs/hour)
From 0-1 hrs.	8
From 1-2 hrs.	9
From 2-3 hrs.	6
From 3-4 hrs.	5
From 4-5 hrs.	3
From 5-6 hrs.	3
From 6-7 hrs.	3
From 7-8 hrs.	2

 

Hours spent gathering coconuts	Total number of coconuts gathered
0	0
1	6
2	11
3	16
4	20
5	23
6	24
7	24
8	24

 

Time spent	Marginal benefit (Coconuts/hr)
From 0-1 hrs.	6
From 1-2 hrs.	5
From 2-3 hrs.	5
From 3-4 hrs.	4
From 4-5 hrs.	3
From 5-6 hrs.	1
From 6-7 hrs.	0
From 7-8 hrs.	0

The marginal benefit columns show that the first hour will be more productive if you catch crabs, since you can catch 8 of them, compared to only 6 coconuts. The second hour will also be more productive if you can catch crabs, because you can catch 9 of them, compared to 6 coconuts (because the first hour you allocate4 to gathering coconuts will give you 6, even if it happens to be the first hour you spend acquiring food). The third hour can be spent just as productively in gathering coconuts as catching crabs, so you will allocate the next two hours one hour each to crabs and coconuts…and so on. All in all, you will allocate 4 hours to each activity. By the end of the day you will have 28 crabs and 20 coconuts.