Suppose you are designed a new computer and want to make sure it is optimal for

Question

Suppose you are designed a new computer and want to make sure it is optimal for your needs. Random Access Memory can be added to your computer at a cost of $100 per gigabyte. For you the benefit of the first gigabyte of RAM is $800, and the benefit decreases by 50 percent for each additional gigabyte (the second gigabyte has a value of $400, etc.).

Suppose your designing your computer, with the same benefits from additional RAM described in the proceeding problem. How much RAM do you desire if the price of RAM falls to $50?


2,4,5, or 50?and why?

Explanation / Answer

If we have 2 GM of ram our benefit will be 800*50%=400*50%=200 while our cost will also be 100*2=200

If we have 4 GM of ram our benefit will be 800*50%=400*50%=200*50%=100*50%=50 while our cost will also be 100*4=400

If we have 4 GM of ram our benefit will be 800*50%=400*50%=200*50%=100*50%=50*50%=25 while our cost will also be 100*5=500

If we have 4 GM of ram our benefit will be 800*50%=400*50%=200*50%=100*50%=50*50%=25....this will eventually go to 0 due to diminishing utility while our cost will also be 100*50=5000

 

If ram goes down to 50 dollars we will want 4 GB because the benefit and the cost will be equal at 200

benefits
800*50%=400*50%=200
costs
50*4=200

 

 

 

Hope this helps

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