ECON 120 Lecture Notes - Lecture 2: Marginal Utility, Marginal Cost, Fixed Cost

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pearmallard749

14 Dec 2016

School

Kansas State University

Department

Economics

Course

ECON 120

Professor

Heather Luea

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Document Summary

Budget line graphical illustration of our income/budget constraint: shifts changes in income, pivots changes in price. Mu = change in total utility / change in quantity: diminishing marginal utility marginal utility falls as consumption of a good increases, utility maximization maximizing benefit. Myx / px = marginal utility per dollar for good x. Myy /py = marginal utility per dollar for good y. Forms of business sole props, partnerships, and corporations page 166. Total revenue amount of money that firms bring into the company: tr = price x quantity. Total cost cost of production: tc = fixed cost + variable cost. Fixed cost does not vary with the level of production. Variable cost do vary with the level of production. Economic cost both explicit and implicit: explicit out of pocket/cash payments. Profit = total revenue total cost. Accounting profit = total revenue explicit cost. Economic profit = total revenue explicit cost implicit cost.

Related Questions

Ross derives utility from only two goods, chocolates (x) and donuts (y). His utility function is as follows: U(x,y) = 2xy. His marginal utility from chocolates (x) and donuts (y) are given as follows: MUx = 2y and MUy = 2x. Ross has an income of $100 and the price of chocolates (Px) and donuts (Py) are both $0.50. b. Suppose the price of donuts (Py) increases to $0.80, the price of chocolates and income remain unchanged. How much is the total effect of this price change on Ross's consumption of donuts? Show your work. How much of this total effect is due to the income effect and how much is due to the substitution effect? Show your work.

fuchsiawater-buffalo348

budget line

marginal utility

complete property of preferences

market demand

consumption bundle

substitution effect

Giffen good

total effect

income effect

transitive property of preferences

indifference curves

utility

the marginal rate of substitution

utility function

1.	_____	The satisfaction or benefit that consumers receive from consuming goods or services.
2.	________________ _	A particular combination of specific quantities of goods or services
3.	________________ _	Consumers can rank all conceivable bundles of goods or services
4.	_____	If A is preferred to B, and B is preferred to C, then A is always preferred to C.
5.	_____	Equation showing a consumerâs perception of the total utility forthcoming from consuming each bundle of goods and services.
6.	_____	A set of consumption bundles each and every one of which provides a consumer with exactly the same level of total utility.
7.	_____	The number of units of Y that must be given up for total utility to remain the same when one more unit of X is consumed.
8.	_____	The addition to total utility attributable to consuming one more unit of a good, holding the consumption of all other goods constant.
9.	_____	The line showing all bundles of goods that can be purchased at given prices if the entire income is spent.
10.	_____	The change in the consumption of a good that would result if the consumer remained on the original indifference curve after the price of the good changes.
11.	_____	The change in consumption of goods results strictly from the change in purchasing power after the price of a good changes.
12.	________________ _	The sum of the substitution and income effects.
13.	_____	A good for which quantity demanded varies directly with price, causing an upward sloping demand curve.
14.	_____	A list of prices and the corresponding quantity consumers are willing and able to purchase at each price.

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1. (Law of Diminishing Marginal Utility) Some restaurants offer âall you can eatâ meals. How is this practice related to diminishing marginal utility? What restrictions must the restaurant impose on the customer in order to make a profit? (Answers may vary)

2. (Marginal Utility) Is it possible for marginal utility to be negative while total utility is positive? If yes, under what circumstances is it possible?

3. (Role of Time in Demand) In many amusement parks, you pay an admission fee to the park but you do not need to pay for individual rides. How do people choose which rides to go on? (Answers may vary)

4. What is the diamonds-water paradox, and how is it explained? Use the same reasoning to explain why bottled water costs so much more than tap water.

5. Please read Jane Katzâs âThe Joy of Consumption: We Are What We Buy,â in the Federal Reserve Bank of BostonâsRegional Review at http://www.bos.frb.org/economic/nerr/rr1997/winter/katz97_1.htm and briefly discuss/summarize the evidence that Katz cites about how the rising value of time has affected consumer spending patterns.

6. Suppose that marginal utility of Good X = 100, the price of X is $10 per unit, and the price of Y is $5. Assuming that the consumer is in equilibrium and is consuming both X and Y, what must the marginal utility of Y be? (Hint: Please apply the formula: MUx/Px = MUy/Py)

7. What is consumer surplus? What happens to consumer surplus as price level falls?

8. Do you think any good which does not exhibit the law of diminishing marginal utility?

ECON 120 Lecture Notes - Lecture 2: Marginal Utility, Marginal Cost, Fixed Cost

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