Help with pretty simple Econ Problem

[DarkManX]

I have to do to the following problem for homework and theres no simmiliar example in the book, it seems pretty simple but I just cant figure it out. any ideas?


"Suppose that RAM can be added to your computer at a cost of 1.25$ per megabyte. Suppose also that the value to you, measured in terms of your willingness to pay, of an additional megabyte of memory is 400$ for the first megabyte, and then falls by one-half for each additional megabyte. Draw a graph of marginal cost and marginal benefit. How many megabytes of memory should you purchase now?"

 

[leftyman]

D) All of the above.

 

[hdeck]

draw a graph. label 1 axis MB and the other $. draw a line of cost/MB that is upward sloping and draw a line of willingness to pay that is downward sloping. buy the amount at the cost where the 2 lines intersect.

 

[dullard]

Each extra MB costs you $1.25. So the marginal cost is $1.25/MB. The graph with MB on the X-axis and $ on the Y-axis would be a straight horizontal line at $1.25.

Each extra MB gives you a value of $400/(2^x) where x is the number of MB you purchase. If x=1, you get $400 value. If x=2 you get $200 value. If x=10, you get $0.78 value. This looks like a curve ($400 at x=1 and $0 at x=infinity).

To answer your other question, do a little math ($400/(2^x) = $1.25) or see where the curves cross.

 

[So]

x/(1-2^-x)=640

 

[DarkManX]

thank u guys

 

[NikolaeVarius]

You should buy 4 gigs.

 

[DarkManX]

arg im still having trouble figuring it out.

 

[WombRaider]

Answer: You need a 64-bit OS.

 

[hypn0tik]

Originally posted by: DarkManX
arg im still having trouble figuring it out.

What exactly are you having trouble with? Solving the equation and finding the point of intersection ?

 

[DarkManX]

Originally posted by: hypn0tik

Originally posted by: DarkManX
arg im still having trouble figuring it out.

What exactly are you having trouble with? Solving the equation and finding the point of intersection ?

yea, i cant find anything similiar in the book, so i dont want to screw it up. im guessing the benefit curve will be round, but im having trouble figuring out where it will interesect.

 

[thecrecarc]

Dude, you NEED 4gb or your computer will slow down to a crawl!

 

[hypn0tik]

Originally posted by: DarkManX

Originally posted by: hypn0tik

Originally posted by: DarkManX
arg im still having trouble figuring it out.

What exactly are you having trouble with? Solving the equation and finding the point of intersection ?

yea, i cant find anything similiar in the book, so i dont want to screw it up. im guessing the benefit curve will be round, but im having trouble figuring out where it will interesect.

Assuming the following is correct (not an Econ major, but I can do math).

Originally posted by: dullard
Each extra MB costs you $1.25. So the marginal cost is $1.25/MB. The graph with MB on the X-axis and $ on the Y-axis would be a straight horizontal line at $1.25.

Each extra MB gives you a value of $400/(2^x) where x is the number of MB you purchase. If x=1, you get $400 value. If x=2 you get $200 value. If x=10, you get $0.78 value. This looks like a curve ($400 at x=1 and $0 at x=infinity).

To answer your other question, do a little math ($400/(2^x) = $1.25) or see where the curves cross.

I think it should be 800/2^x since 800/2^1 = 800/2 = 400.

In any case:

800/2^x = 1.25
800/1.25 = 2^x
640 = 2^x
ln(640) = x * ln(2)
x = ln(640)/ln(2)

ln or Ln should be a button on your calculator and you can solve for x.

x = 9.32 in this case.