The marginal utility graph for both would be negative because the marginal utility per hamburger and the marginal utility per milkshake both decrease as the quantity consumed increases. Both graphs would also approximate a curve because the change in marginal utility is not constant as the quantity consumed increases; for both graphs, the change is greater between the first two units consumed than between the last two units consumed. In addition, because the overall change in the marginal utility of hamburgers is greater than the change in the marginal utility of milkshakes, the hamburger curve would be steeper than the milkshake curve.
What will be an ideal response?
: (1) a situation in which using a rule of thumb led to an optimal result, such as ordering the burger off a menu at a new restaurant because you EXPECT the odds are low that any restaurant would make a bad burger (and you were right!), and (2) a situation in which using a rule of thumb led to a less-than-optimal result, such as when you bought a faulty refrigerator because you did not have time to do research and made the purchase based on the brand name. Students should recognize that in both situations, they used a rule of thumb because they lacked time or information to thoroughly weigh the marginal utility of their choices (bounded rationality). They should also recognize that not all rules of thumb lead to optimal outcomes: in one situation it helped them maximize their utility, whereas in the other it did not.
You might also like to view...
Suppose Ernie gives up his job as financial advisor for P.E.T.S., at which he earned $30,000 per year, to open up a store selling spot remover to Dalmatians. He invested $10,000 in the store, which had been in savings earning 5 percent interest. This year's revenues in the new business were $50,000 . and explicit costs were $10,000 . Calculate Ernie's economic profit
a. $10,000 b. $50,000 c. $20,000 d. $40,000 e. $9,500
Average total cost and average variable cost are minimized at the same level of output.
Answer the following statement true (T) or false (F)
With unstable commodity demand and thus an unstable ________ curve, fluctuations in output are ________ by the fortuitous selection of ________ targeting
A) LM, minimized, money supply B) LM, eliminated, interest rate C) LM, minimized, interest rate D) IS, minimized, money supply E) IS, eliminated, interest rate
If fluctuations in economic activity come from the supply side, higher inflation is associated with
a. lower interest rates. b. structural deficits. c. higher rates of unemployment. d. lower rates of unemployment.