Utility
What is the definition of utility?
satisfaction or happiness received from the consumption of goods and services
The total product is increasing
Which of the following is an Explicit Cost?
A: Using a spare room in your house as an office
B: Paying employee salaries
C: Foregone salary to start your own company
D: Lost interest after taking money out of a savings account
B: Paying employee salaries
What is an example of a typical fixed cost?
capital goods, machines, buildings, and utilities as well as the depreciation, rent, financing and taxes associated with them
Finish this phrase: Each additional unit of a good consumed will cause the marginal utility for that good to...
Decline!
What is the equation for marginal utility?
MU=∆TU/∆Q
If a producer's marginal product goes from 8 to 12 to 14, the producer is experiencing what type of marginal returns?
Positive (but diminishing) marginal returns
Which of the following is an implicit cost?
A: Paying rent for an office space
B: Paying a utility bill
C: Time off work for a vacation (assuming no PTO)
D: Cost of transportation
C: Time off work for a vacation (assuming no PTO)
This is a foregone wage
What is total cost?
total economic cost of production, consisting of fixed and variable costs
Good A costs $5, Good B costs $10. If your income is $200 and you want to buy 16 units of B, how many of A can you afford?
What is 8 units of A?
What is the equation for utility maximization for two goods X and Y?
MUx/Px=MUy/Py
If marginal product is negative, what is happening to the total product?
Rolando owns a hot dog stand. To operate his stand, he pays a license fee of $20 to the city. He also pays $0.50 for each hot dog he produces to cover the cost of the hot dog, bun, packaging, and condiments.
What are Rolando's fixed and variable costs?
Fixed Cost: $20 (license fee)
Variable Costs: $0.50 (hot dog, bun, packaging, condiments)
What are the typical variable costs?
Labor, electricity, and raw materials (which can vary greatly depending on the industry).
True/False: A firm experiencing increasing returns to scale is a good scenario to experience.
True!
Complete the table
Quantity TU MU
1 16 ?
2 26 ?
3 ? 8
4 40 ?
5 42 2
Quantity TU MU
1 16 16
2 26 10
3 34 8
4 40 6
5 42 2
If the average product is 8 and there are 4 workers, what is the total product of 4 workers?
32
If the average variable cost is $40 and the average total cost is $60, what is the average fixed cost?
$20 (ATC=AFC + AVC)
How do you calculate average total cost?
ATC=TC/Q
A student is exhausting her money income consuming products A and B in such quantities that MUa ÷ Pa = 5 and MUb ÷ Pb = 8. The student should purchase
More of product B
The cost of good X is $5 and the cost of good Y is $2. If John has $18 of income to spend, how many units of X and Y will he spend (Hint: remember the equal marginal principle)
Quantity of X MU of X Quantity of Y MU of Y
1 25 1 20
2 20 2 18
3 15 3 12
4 5 4 8
2 units of X and 4 units of Y
Find the average product of 4 workers
Number of Workers MP
1 10
2 8
3 6
4 2
6.5
The company Robo makes robots. When they produce 0 robots, they have a total cost of $26. If it costs them $10 to produce each robot (variable costs), what is their fixed cost and total cost of producing 3 robots?
Fixed Cost: $26
Total Cost: $56
How do you calculate average variable cost?
AVC=TVC/Q
A student says, "You would have to pay me $50 to attend that concert." For this student, the marginal utility of the event is
zero.
positive, but declines rapidly.
negative.
positive, but less than the ticket price.
negative