Homework Answers
Solution:
EXHIBIT 1
Price of hamburgers, Ph = $2, price of fries, Pf = $0.50, price of coke, Pc = $1
Q3) Marginal utility is the additional satisfaction a person derives by consuming an extra unit. So, marginal utility of having a second order of fries is the additional utility the consumer receives by increasing the consumption of fries from one to two. So, in this case, marginal utility of second order of fries = TU2 - TU1 = 50 - 30 = 20 utils. (where TUi is total utility from order number i)
So, correct option is b) 20 utils.
Q4) Total income with the consumer, I = $6
So, the budget line of this consumer becomes: Ph*H + Pf*F + Pc*C = I (H, F, and C is the quantity of hamburgers, fries and coke respectively).
2*H + 0.5*F + 1*C = 6
For all the options, budget line is clearly satisfied. Going through each option individually,
Total utility from option (a): 240 + 0 + 0 = 240 utils
Total utility from option (b): 180 + 0 + 60 = 240 utils
Total utility from option (c): 180 + 50 + 40 = 270 utils
Total utility from option (d): 100 + 50 + 70 = 220 utils
Among all values, clearly 270 utils is highest of all. Thus, the meal giving most utility to the consumer is option (c) 2 H, 2 F and 1 C
Q5) From Q4, we have already established that where the consumer equilibrium is attained: 2 hamburgers, 2 orders of fries, and 1 coke. The marginal utility per dollar for a good i is the ratio of marginal utility attained at the equilibrium quantity of good i divided by the price of that good, that is,
Marginal utility per dollar = MUi/Pi
Marginal utility as explained in Q3, can be obtained at the equilibrium as follows:
Marginal utility of 2nd hamburger = 180 - 100 = 80 utils
Marginal utility of 2nd order of fries = 50 - 30 = 20 utils
Marginal utility of 1st coke = total utility of 1st coke (assuming that utility from consuming 0 coke is 0) = 40 utils
So, at equilibrium, marginal utility per dollar for hamburgers = 80/Ph = 80/2 = 40 utils
Marginal utility per dollar for fries = 20/Pf = 20/0.5 = 40 utils
Marginal utility per dollar for coke = 40/Pc = 40/1 = 40 utils
EXHIBIT 2:
Q6) As the economy moves from 0 unit of capital good to 1 unit of capital good, it automatically moves from 25 units of consumption goods to 23 units of consumption goods along the production possibility curve (PPC). So, the cost of first unit of capital good (that is the units of consumption goods economy will have to give up to get that first unit of capital good) = 25 - 23 = 2 units
Correct option: b) 2
Q7) Just as we solved above in Q6, we can find that the cost of:
Second unit of capital good = 23 - 19 = 4 units of consumption goods
Third unit of capital good = 19 - 13 = 6 units of consumption goods
So, the correct option is a) 4; 6
Q8) Clearly, from the above two questions we see that as the number of capital goods is increased in the economy, the quantity of consumption goods sacrificed increases (for 1st unit of capital good, cost is 2 units of consumption good. For second unit, it is 4 units of consumption goods; for third unit, cost is 6 units of consumption goods. So, clearly the sacrifice is increasing from 2 to 4 to 6 units) (eliminate options (a) and (e)). This cost of sacrifice is known as the opportunity cost, thus opportunity cost is increasing along the PPC. This happens due to decreased efficiency of each input towards the capital good, when moved away from the production of consumption good.
Thus, correct option is (c) increases; law of increasing costs
Add Answer to:
Exhibit 1 Total utility for hamburgers, fries, and Cokes Total Uitility from Hamburgers Total Utility from...
Name: ID: A Exhibit 2-10 Production possibilities curve data Capital goods Consumption goods 23 19 13...
Name: ID: A Exhibit 2-10 Production possibilities curve data Capital goods Consumption goods 23 19 13 1 11. Suppose an economy is faced with the production possibilities table shown in Exhibit 2-10. As additional units of capital goods are being produced, the number of consumption goods produced must because increase; the production possibility table shows only the maximum efficiency points increase; of the law of increasing costs decrease; of the law of increasing costs decrease; of the finite nature of...
Question 1 10 points Save Exhibit 2.10 Production possibilities curve data co E Capital goods Consumption...
Question 1 10 points Save Exhibit 2.10 Production possibilities curve data co E Capital goods Consumption goods Suppose an economy is faced with the production possibilities table shown in Exhibit 2.10. If this economy chooses the combination of goods at point A only capital goods are being produced every resource in the economy is utilized in the production of capital goods no capital goods are being used as factors of production every resource in the economy is being used in...
Exhibit 2-1 Production possibilities curv e data Consumption Goods Capital Goods 10 4 4 In Exhibit...
Exhibit 2-1 Production possibilities curv e data Consumption Goods Capital Goods 10 4 4 In Exhibit 2-1, why is the opportunity cost of producing the fourth unit of capital 4 units of consumption goods but ty cost of producing 4 units of capital is 10 units of consumption goods? Because the opportunity cost of capital goods is constant while the opportunity cost of consumption goods is g as this economy moves from more consumption goods to more capital goods. Because...
2. Eli's preferences for hamburgers and beer can be described by the utility function U(H, B)min(3H,...
2. Eli's preferences for hamburgers and beer can be described by the utility function U(H, B)min(3H, 2B). Christopher's preferences can be described by the utility function U(H, B) = 3H + 2B. They each have a monthly income of! dollars to spend on these two goods. The price of hamburgers is Pu and the price of beer is PB, where the opportunity cost of buying an additional hamburger is 2 beers. Derive the demand functions for beer and hamburgers, for...
Question 8 Exhibit 2-13 Production possibilities curve Consumption goods Capital goods In Exhibit 2-13, the combination...
Question 8 Exhibit 2-13 Production possibilities curve Consumption goods Capital goods In Exhibit 2-13, the combination of goods given by point H could: never be achieved by this economy be achieved today if the economy achieved full employment be achieved today if the economy achieved maximum efficiency. not be achieved today. be achieved today with the proper allocation of resources, A Moving to another question will save this response.
4) Refer to Exhibit 2-4. In moving production allocations from points B to D on the...
4) Refer to Exhibit 2-4. In moving production allocations from
points B to D on the Production Possibilities Frontier (PPF), the
opportunity cost of production at Point C is ________ unit(s) of
__________ goods, respectively A) 15; capital B) 15; consumption C)
12.5; capital D) 12.5; consumption
Exhibit 2-4 Firm X's Points of Production Points onCapital Consumption 30.00 27.00 21.00 12.00 0.00 0.00 6.25 12.50 18.75 25.00
9. The pricing system Consider the market for hamburgers in an economy where the market equilibrium...
9. The pricing system Consider the market for hamburgers in an economy where the market equilibrium is characterized by a quantity of hamburgers of 50 million and a price of $5.00 per hamburger. Suppose that currently 80 million hamburgers are being produced and sold at a price of $2.50. This outcome in the market for hamburgers is economically because: Some hamburgers produced incur opportunity costs of production that exceed their value or marginal benefit to consumers. The opportunity cost of...
14. The pricing system Consider the market for hamburgers in an economy where the market equilibrium...
14. The pricing system Consider the market for hamburgers in an economy where the market equilibrium is characterized by a quantity of hamburgers of 50 million and a price of $5.00 per hamburger. Suppose that currently 80 million hamburgers are being produced and sold at a price of $2.50. This outcome in the market for hamburgers is economically ▼ because: O The opportunity cost of producing the last hamburger equals the marginal benefit of consumption. O Some hamburgers produced incur...
Suppose that a fast-food junkie derives utility from three goods-soft drinks (x), hamburgers (y), and ice...
Suppose that a fast-food junkie derives utility from three goods-soft drinks (x), hamburgers (y), and ice cream sundaes (z)-according to the Cobb- Douglas utility function: Suppose also that the prices for these goods are given by Px-1,py-4, and pz-8 and this consumer's income is given by 1-8 If z-0, then the combination of x and y that optimize utility involve x*- utility U and y*- , These values of x* and y result in a level of If z- 1,...
QUESTION 6 Total Utility from Y 85 130 160 185 200 210 215 Total Utility from...
QUESTION 6 Total Utility from Y 85 130 160 185 200 210 215 Total Utility from X 24 Quan 56 74 80 84 Refer to the table above. Given that the price of good X is $2 per unit, the price of good Y is $5 per unit, and that the consumer spends a total of $44 on both goods, what is the total utility associated with the utility-maximizing combination? A 280 B. 294 C. 172 D.We don't have enough...
Name: ID: A Exhibit 2-10 Production possibilities curve data Capital goods Consumption goods 23 19 13 1 11. Suppose an economy is faced with the production possibilities table shown in Exhibit 2-10. As additional units of capital goods are being produced, the number of consumption goods produced must because increase; the production possibility table shows only the maximum efficiency points increase; of the law of increasing costs decrease; of the law of increasing costs decrease; of the finite nature of...
Question 1 10 points Save Exhibit 2.10 Production possibilities curve data co E Capital goods Consumption goods Suppose an economy is faced with the production possibilities table shown in Exhibit 2.10. If this economy chooses the combination of goods at point A only capital goods are being produced every resource in the economy is utilized in the production of capital goods no capital goods are being used as factors of production every resource in the economy is being used in...
Exhibit 2-1 Production possibilities curv e data Consumption Goods Capital Goods 10 4 4 In Exhibit 2-1, why is the opportunity cost of producing the fourth unit of capital 4 units of consumption goods but ty cost of producing 4 units of capital is 10 units of consumption goods? Because the opportunity cost of capital goods is constant while the opportunity cost of consumption goods is g as this economy moves from more consumption goods to more capital goods. Because...
2. Eli's preferences for hamburgers and beer can be described by the utility function U(H, B)min(3H, 2B). Christopher's preferences can be described by the utility function U(H, B) = 3H + 2B. They each have a monthly income of! dollars to spend on these two goods. The price of hamburgers is Pu and the price of beer is PB, where the opportunity cost of buying an additional hamburger is 2 beers. Derive the demand functions for beer and hamburgers, for...
Question 8 Exhibit 2-13 Production possibilities curve Consumption goods Capital goods In Exhibit 2-13, the combination of goods given by point H could: never be achieved by this economy be achieved today if the economy achieved full employment be achieved today if the economy achieved maximum efficiency. not be achieved today. be achieved today with the proper allocation of resources, A Moving to another question will save this response.
4) Refer to Exhibit 2-4. In moving production allocations from
points B to D on the Production Possibilities Frontier (PPF), the
opportunity cost of production at Point C is ________ unit(s) of
__________ goods, respectively A) 15; capital B) 15; consumption C)
12.5; capital D) 12.5; consumption
Exhibit 2-4 Firm X's Points of Production Points onCapital Consumption 30.00 27.00 21.00 12.00 0.00 0.00 6.25 12.50 18.75 25.00
9. The pricing system Consider the market for hamburgers in an economy where the market equilibrium is characterized by a quantity of hamburgers of 50 million and a price of $5.00 per hamburger. Suppose that currently 80 million hamburgers are being produced and sold at a price of $2.50. This outcome in the market for hamburgers is economically because: Some hamburgers produced incur opportunity costs of production that exceed their value or marginal benefit to consumers. The opportunity cost of...
14. The pricing system Consider the market for hamburgers in an economy where the market equilibrium is characterized by a quantity of hamburgers of 50 million and a price of $5.00 per hamburger. Suppose that currently 80 million hamburgers are being produced and sold at a price of $2.50. This outcome in the market for hamburgers is economically ▼ because: O The opportunity cost of producing the last hamburger equals the marginal benefit of consumption. O Some hamburgers produced incur...
Suppose that a fast-food junkie derives utility from three goods-soft drinks (x), hamburgers (y), and ice cream sundaes (z)-according to the Cobb- Douglas utility function: Suppose also that the prices for these goods are given by Px-1,py-4, and pz-8 and this consumer's income is given by 1-8 If z-0, then the combination of x and y that optimize utility involve x*- utility U and y*- , These values of x* and y result in a level of If z- 1,...
QUESTION 6 Total Utility from Y 85 130 160 185 200 210 215 Total Utility from X 24 Quan 56 74 80 84 Refer to the table above. Given that the price of good X is $2 per unit, the price of good Y is $5 per unit, and that the consumer spends a total of $44 on both goods, what is the total utility associated with the utility-maximizing combination? A 280 B. 294 C. 172 D.We don't have enough...
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