Questions say, $2 for hamburgers, you paid

Questions Assignment 4

Kamran Rezvani

California Southern University

ECO 2403

Jan. 2018

Dr. Flores

 

 

 

Questions Assignment 4

Chapter 7

1. Explain the law of diminishing
marginal utility, and give an example to illustrate it.

            As
we consume increasing amounts of a good or service, we derive diminishing
utility, or satisfaction, from each additional unit consumed.  This is especially true for food. As we get
less hungry, we derive diminishing amounts of satisfaction, or utility, from
each additional unit that we eat. If you were in the desert and someone was
selling 8-ounce bottles of water, you might well be willing to pay $10 for that
first bottle, and perhaps $8 for the second, $5 for the third, and so on.

Reference: Slavin. Microeconomics,
11th Edition. McGraw-Hill Higher Education

https://www.investopedia.com/terms/l/lawofdiminishingutility.asp

 

2. If you were to consume five
hamburgers at Wendy’s, would you enjoy a consumer

surplus? Explain your answer.

            Presumably
you would have been willing to pay more for the first hamburger than the
second, and more for the second than the third. Each additional hamburger you
consumed yielded less utility than the previous one. If you consumed five, and
Wendy’s charged, let’s say, $2 for hamburgers, you paid a total of $10 for
those five hamburgers. The first four you consumed were worth more to you than
$2 each, so the total utility you got from those five hamburgers was more than
$10. Therefore, you enjoyed a consumer surplus.

Reference: Slavin. Microeconomics,
11th Edition. McGraw-Hill Higher Education

 

4. Why would Tommy Watson eventually reach
the point of negative marginal utility at an all-you-can-eat restaurant?

            Since
you will keep eating until the marginal utility of that last plateful of food
is zero, you will have reach the point of negative marginal utility. Of course
some people go beyond that point.

Reference: Slavin. Microeconomics,
11th Edition. McGraw-Hill Higher Education

 

5. Explain the water–diamond paradox.

            Why
is water, which is essential to life, so cheap, while diamonds, which are not
at all essential, are so expensive? The law of diminishing marginal utility
tells us that as we consume increasing amounts of a good or service, we derive
decreasing utility from each additional unit consumed. Second, we know from the
general utility formula that we’ll keep buying more of a good or service until
its marginal utility falls to the level of its price. Therefore: MU of Water =
MU of diamonds P of Water?P of diamonds

The price of water in most parts of
the world is low because it is abundant. But the price of diamonds is high
because they are not abundant.

Reference: Slavin. Microeconomics,
11th Edition. McGraw-Hill Higher Education

Teach and Learn

 

Chapter 8

1. What happens to the difference
between ATC and AVC as a firm’s output expands? Explain.

            The
difference narrows. ATC is the sum of AVC and AFC. Since AFC declines steadily
as output rises, the difference between ATC and AVC must narrow steadily.

 Reference: Slavin. Microeconomics, 11th
Edition. McGraw-Hill Higher Education

 

2. How would you distinguish between
the short run and the long run?

            In
the short run there are fixed costs; in the long run there are no fixed costs.

 Reference: Slavin. Microeconomics, 11th
Edition. McGraw-Hill Higher Education

 

6. Why are there no fixed costs in
the long run?

            In
the long run all contracts will have expired, so there will be no fixed costs.
If they are renewed, we are again in the short run.

 Reference: Slavin. Microeconomics, 11th
Edition. McGraw-Hill Higher Education

https://www.investopedia.com/terms/s/shortrun.asp

 

7. Why is a business firm never in
the long run?

            As
contracts are expiring, the firm has the option of going out of business or
renewing the contracts. If it chooses to renew the contracts, it is back in the
short run.

 Reference: Slavin. Microeconomics, 11th
Edition. McGraw-Hill Higher Education

 

Chapter 9

1. How do you find the most efficient
output, and how do you find the most profitable output?

            The
most efficient output is found at the bottom of the ATC curve where it is
intersected by the MC curve. The most profitable output is where MC and MR
cross.

Reference: Slavin. Microeconomics,
11th Edition. McGraw-Hill Higher Education

 

3. Is the analysis for maximizing
profits the same as that for minimizing losses? Explain why it is or why it
isn’t.

            the
analysis for maximizing profits is the same as that for minimizing losses because
in both instances the firm produces at that output at which MC = MR.  Total profit is calculated using the same
formula as Total loss: (P – ATC) x output.

 Reference: Slavin. Microeconomics, 11th
Edition. McGraw-Hill Higher Education

 

4. What is the difference between the
firm’s short-run supply curve and its long-run supply curve? Make up an example
to explain your answer.

            Short-run
supply curve in a firm begins at the shut-down point and lasts all the way up
the firm’s MC curve. The firm’s long-run supply curve starts at the break-even
point and goes all the way up the firm’s MC curve. Therefore, the long-run
supply curve is a segment of the short-run supply curve above the break-even
point.

Reference: Slavin. Microeconomics,
11th Edition. McGraw-Hill Higher Education

 

5. At the output at which MC =
MR, suppose that price were higher than AVC but lower than ATC. What should the
firm do in the short run and the long run? Explain your answer.

            In
the short run the firm should operate since price is greater than AVC.  In the long run the firm should go out of
business because ATC is greater than price.

 Reference: Slavin. Microeconomics, 11th
Edition. McGraw-Hill Higher Education

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reference:

Slavin.
Microeconomics, 11th Edition. McGraw-Hill Higher Education

https://www.investopedia.com/terms/l/lawofdiminishingutility.asp

Teach and Learn

https://www.investopedia.com/terms/s/shortrun.asp