Chillingsworth Has a Neighbor, Shivers, Who Faces the Same Options

question 5

Multiple Choice

Chillingsworth has a neighbor, Shivers, who faces the same options for insulating his house as Chillingsworth.But Shivers has a larger house.Shivers's annual fuel bill for home heating is 700 dollars per year.Plan A will reduce his annual fuel bill by 15%, plan B will reduce it by 20%, and plan C will eliminate his need for heating fuel altogether.The plan A insulation job would cost Shivers 700 dollars, plan B would cost him 1,200 dollars, and plan C would cost him 7,700 dollars.If the interest rate is 10% and his house and the insulation job last forever, which plan is the best for Shivers?

• A)Plan A.
• B)Plan B.
• C)Plans A and B are equally good.
• D)Plan C.
• E)He is best off using none of the plans.

---

Definitions:

Marginal Product of Labor

The additional output produced as a result of adding one more unit of labor, all else being constant.

Optimal Level of Resource Use

The most efficient, sustainable use of resources that maximizes benefits while minimizing negative environmental and economic impacts.

Marginal Revenue Product (MRP)

The additional revenue generated from employing one more unit of a resource, like labor or capital.

Marginal Revenue Product

The additional revenue generated from using one more unit of a variable resource in the production process.