A decision maker is choosing the levels of two activities, A and B, so as to maximize total benefits

... under a given budget. The prices and marginal benefits of the last units of A and B are denoted PA’ PB’ MBA’ and MBB’

a). If PA = $20, PB = $15, MBA = 400, and MBB = 600, what should the decision maker do?

b). If PA = $20, PB = $30, MBA = 200, and MBB = 300, what should the decision maker do?

c). If PA = $20, PB = $40, MBA = 300, and MBB = 400, how many units of A can be obtained if B is reduced by one unit? How much will benefits increase if this exchange is made?

d). If the substitution in part c continues to equilibrium and MBA falls to 250, what will MBB be?