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You are moving across town. Doing your research, you find that the average rate of a moving company is $250 per house for a moving crew (moving truck included). The marginal benefit you receive from each hour of the movers time (and truck) is listed in the table
You are moving across town. Doing your research, you find that the average rate of a moving company is $250 per house for a moving crew (moving truck included). The marginal benefit you receive from each hour of the movers time (and truck) is listed in the table ______________________________________________________
Hours MB($)
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1 $850
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2 $620
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3 $500
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4 $250
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5 $150
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6 $100
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7 $0
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8 $0
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Based on this information, you should hire movers for __________ hours and you will receive $_____________ in consumer surplus
a. 4 hours and you will receive $500 in consumer surplus
b. 3 hours and you will receive $550 in consumer surplus
c. 2 hours and you will receive $380 in consumer surplus
d. 5 hours and you will receive $350 in consumer surplus
Final answer:The student should hire the movers for 3 hours, which would result in the highest consumer surplus of $1220, calculated by subtracting the total cost from the cumulative marginal benefit over those hours. There is an error in the provided options, as none match the calculated surplus of $1220.Explanation:To calculate the optimal number of hours to hire movers and the resulting consumer surplus, we evaluate the marginal benefit (MB) for each hour relative to the consistent marginal cost of hiring the movers, which is $250 per hour. To maximize consumer surplus, you should hire movers up until the point where the MB equals the marginal cost. Analyzing the provided table:At 1 hour, MB is $850 and the cost is $250, resulting in a surplus of $600.At 2 hours, the cumulative MB is $850+$620=$1470 and the cost is 2*$250=$500, resulting in a cumulative surplus of $1470-$500=$970.At 3 hours, the cumulative MB is $1470+$500=$1970 and the cost is 3*$250=$750, resulting in a cumulative surplus of $1970-$750=$1220.At 4 hours, the cumulative MB is $1970+$250=$2220 and the cost is 4*$250=$1000, resulting in a cumulative surplus of $2220-$1000=$1220.For subsequent hours, MB decreases, which would decrease the total surplus.As the table shows, the consumer surplus stops increasing after 3 hours, and hiring for a fourth hour does not increase the total surplus. Therefore, the optimal amount of time to hire the movers is 3 hours, which results in a total consumer surplus of $1220 - the combined surplus from each hour of service subtracting the total cost. However, since the consumer surplus does not increase after 3 hours, the answer is 3 hours and you will receive $1220 in consumer surplus, which is not listed in the provided options, suggesting a potential error in the options given....