ECON 101 MIDTERM 2. Agenda. Chapter 8: Utility and Demand Chapter 9: Possibilities, Preferences, and Choices Chapter 11: Output and Costs. Chapter 8. Definitions: Utility: The benefit that a person gets from the consumption of a good or service
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Chapter 8: Utility and Demand
Chapter 9: Possibilities, Preferences, and Choices
Chapter 11: Output and Costs
A consumer’s total utility is maximized by following the rule:
Billy makes $40 a month. Hair gel costs $10 per bottle and T-shirts are $5 each.
True or False
(1) If the marginal utilities from consuming two goods are not equal, the consumer cannot be in equilibrium.
(2) When the price of a good increases, the marginal utility from the consumption of that good decreases.
Budget Line: limits to a household’s consumption choices
Divisible Goods: goods that can be bought in any quantity desired
Budget Equation: Expenditure = Income
Real Income: a household’s income expressed as a quantity of goods that the household can afford to buy
Relative price: the ratio of the price of one good or service to the price of another good or service; is an opportunity cost
Indifference Curve: shows combinations of goods among which a consumer is indifferent
Marginal rate of substitution: the rate at which a person will give up good y to get an additional unit of good x and at the same time remain indifferent (stay on the same indifference curve)
Best Affordable choice
Price effect can be divided into two parts:
Short run: time frame in which the quantity of at least one factor of production is fixed
Long run: time frame in which the quantities of all factors of production can be varied
Total product: maximum output that a given quantity of labour can produce
Marginal product: increase in total product that results from a one-unit increase in the quantity of labour employed
Average product: (Total product)/(Quantity of labour employed)
Total Cost: cost of all the factors of production a firm uses
Total fixed cost: cost of the firm’s fixed factors
Total variable cost: cost of the firm’s variable factors
Total cost = Total fixed cost + Total variable cost
Marginal cost = (Increase in total cost)/(Increase in Output)
Average Fixed cost: total fixed cost per unit of output
Average variable cost: total variable cost per unit of output
Average total cost: total cost per unit of output
Billy opens his own Hair Gel company and the total product schedule is:
a) Draw the Total product curve, Average product curve, Marginal product curve
Billy hires workers at $200 per month. He also has fixed costs of $200 a month.
Billy opens a second plant and the output produced by each worker increases by 100%. The total fixed cost of operation each plant is $200 a month. Each worker is paid $200 a month.