Business Economics (BE) 301 Assessment 2
Solved 100% Correct
Marginal Utility - ANSWER-The satisfaction one gets from consuming one additional
unit of a product above and beyond what has been consumed up to that point
Diminishing Marginal Utility - ANSWER-decrease in satisfaction or usefulness from
having one more unit of the same product
"The second beer is never as good as the first..."
Factoring in a Budget - ANSWER-But because consumers do operate on a budget...
...they maximize their utility...
...not by purchasing the thing with the highest utility...
but actually by purchasing the thing with the highest utility per dollar...
Consumer Choice Theory - ANSWER-Preferences:
-Complete: It's possible to compare any two bundles of goods
-Non-satiated: More is better
-Transitive: If I like Bundle X than Bundle Y, and I like Bundle Y better than Bundle
Z, I must like Bundle X better than Bundle Z.
Indifference Curves - ANSWER--Tool that we use to analyze choices
-Choices may be made by individual, by firm
-Utility...
-set of combinations of goods that provide the same level of utility
Capital - ANSWER-Equipment and Buildings
Fixed Input - ANSWER-Not every increase in output requires additional amount of
input
Example: L.L. Bean makes 100 jackets; they don't need another sewing machine to
make 5 more
Variable Input - ANSWER-Any increase in output requires additional amount of
input
Example: L.L. Bean makes 100 jackets; in order to make 5 more (or one more!)
they need additional material and thread.
Quasi-Fixed Input - ANSWER-Lumpy or indivisible input for which a fixed amount
, must be used for any level of output, and for which none is purchased when output
is zero.
Example: Company goes out of business v. company shuts down for 2 weeks or a
month
Labor= blank Capital= black - ANSWER-Labor (People) and Capital (Equipment)
Can labor be substituted 100 percent? - ANSWER-Maybe not 100%, but frequently
Production Function Equation - ANSWER-Q = f(K,L)
Q= Total Output/Total Product (TP)
K=capital
L=Labor
What does (Q= 2*L + 3*K) represent in regards to substitution? - ANSWER-Capital
and Labor can be substituted 100%
What does (2*L)*(3*K) represent in regards to substitution? - ANSWER-Capital and
Labor CANNOT be substituted 100%
Average Product (AP) - ANSWER-Your Total Output divided by the quantity of your
input.
• 40 groomed dogs
• 16 labor hours
• Average Product of Labor: 40/16 or 2.5
• Q /L
Average Product (AP) in the Production Function - ANSWER-Q = 2*L + 3*K
So
APL = [2*L + 3*K] / L or APL = 2 + [(3K)/L]
Q = (2*L)*(3*K)
So
APL = [(2*L)*(3*K)] / L or APL = 6K
Marginal Product - ANSWER-The change in your total output (total product) when
you add one more unit of an input...
Examples:
- Lawn-mowing business: Hire one more person, how many more "mowed lawns"
do you produce?
- Law firm: Hire one more lawyer, how many more "billable hours" does your firm
produce?
- Clinic: Hire one more physician or physician's assistant (PA); how many more
patients can you treat?
Solved 100% Correct
Marginal Utility - ANSWER-The satisfaction one gets from consuming one additional
unit of a product above and beyond what has been consumed up to that point
Diminishing Marginal Utility - ANSWER-decrease in satisfaction or usefulness from
having one more unit of the same product
"The second beer is never as good as the first..."
Factoring in a Budget - ANSWER-But because consumers do operate on a budget...
...they maximize their utility...
...not by purchasing the thing with the highest utility...
but actually by purchasing the thing with the highest utility per dollar...
Consumer Choice Theory - ANSWER-Preferences:
-Complete: It's possible to compare any two bundles of goods
-Non-satiated: More is better
-Transitive: If I like Bundle X than Bundle Y, and I like Bundle Y better than Bundle
Z, I must like Bundle X better than Bundle Z.
Indifference Curves - ANSWER--Tool that we use to analyze choices
-Choices may be made by individual, by firm
-Utility...
-set of combinations of goods that provide the same level of utility
Capital - ANSWER-Equipment and Buildings
Fixed Input - ANSWER-Not every increase in output requires additional amount of
input
Example: L.L. Bean makes 100 jackets; they don't need another sewing machine to
make 5 more
Variable Input - ANSWER-Any increase in output requires additional amount of
input
Example: L.L. Bean makes 100 jackets; in order to make 5 more (or one more!)
they need additional material and thread.
Quasi-Fixed Input - ANSWER-Lumpy or indivisible input for which a fixed amount
, must be used for any level of output, and for which none is purchased when output
is zero.
Example: Company goes out of business v. company shuts down for 2 weeks or a
month
Labor= blank Capital= black - ANSWER-Labor (People) and Capital (Equipment)
Can labor be substituted 100 percent? - ANSWER-Maybe not 100%, but frequently
Production Function Equation - ANSWER-Q = f(K,L)
Q= Total Output/Total Product (TP)
K=capital
L=Labor
What does (Q= 2*L + 3*K) represent in regards to substitution? - ANSWER-Capital
and Labor can be substituted 100%
What does (2*L)*(3*K) represent in regards to substitution? - ANSWER-Capital and
Labor CANNOT be substituted 100%
Average Product (AP) - ANSWER-Your Total Output divided by the quantity of your
input.
• 40 groomed dogs
• 16 labor hours
• Average Product of Labor: 40/16 or 2.5
• Q /L
Average Product (AP) in the Production Function - ANSWER-Q = 2*L + 3*K
So
APL = [2*L + 3*K] / L or APL = 2 + [(3K)/L]
Q = (2*L)*(3*K)
So
APL = [(2*L)*(3*K)] / L or APL = 6K
Marginal Product - ANSWER-The change in your total output (total product) when
you add one more unit of an input...
Examples:
- Lawn-mowing business: Hire one more person, how many more "mowed lawns"
do you produce?
- Law firm: Hire one more lawyer, how many more "billable hours" does your firm
produce?
- Clinic: Hire one more physician or physician's assistant (PA); how many more
patients can you treat?
