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Suppose you currently own two suits and are considering purchasing another
Suppose you currently own two suits and are considering purchasing another. The market price of a new suit is $300, and the marginal benefit you place on a new suit is $450. Which of the following is true?
a. If you do not purchase an additional suit, you will sustain a net loss of $150.
b. If you are rational, you will not purchase any more suits.
c. If you are rational, you will purchase suits until the marginal benefit of another falls to $150.
d. If you purchase an additional suit, you will enjoy a net gain of $150.
Expert Solution
The correct answer to the given question is option d. If you purchase an additional suit, you will enjoy a net gain of $150.
The net gain from the purchase of new suit is given by:
=Marginal benefit - marginal cost or market price
=$450−$300
=$150
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