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Assume that an individual has to choose between two options buying a mobile phone or buying an MP3 player

Assume that an individual has to choose between two options: buying a mobile phone, or buying an MP3 player. The expected cost of buying a phone is $700 and the expected benefit is $900. The expected cost of buying an MP3 player is $300, and the expected benefit is $600. How does the individual arrive at the optimal choice if he implements

a)optimization in levels?

b)optimization in differences?

31) How does optimization in levels differ from optimization in differences? Assume that the city council has to choose one among the following three alternatives: setting up a school, setting up a hospital, and setting up a playground. The estimates of expected cost and benefit of all three projects are shown in the following table. How does the city council arrive at the optimal choice if both the techniques of optimization are implemented? Do the results vary?

 

Project

Cost ($)

Benefit ($)

Playground

15,000

30,000

School

20,000

50,000

Hospital

50,000

75,000

Mar 14 2020 View more View Less

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