Lori plans to buy a convertible this weekend. Her two favorite cars are the BMW, which would give her 160,000 utils of satisfaction, and the Mitsubishi Eclipse Spyder, which would give her only 124,000 utils of satisfaction. The BMW that she wants sells for $37,220, while the Mitsubishi sells for $28,200 . She can afford either car
a. Which car will she buy in order to maximize her utility?
b. To what price will her second choice have to fall to get her to make her first choice?
a. She will buy the Mitsubishi, because its marginal-utility-to-price ratio, 4.397, is higher than the marginal-utility-price ratio for the BMW (4.03).
b. If the price of the BMW falls to $34,114.17 = 160,000 / 4.397, she will be indifferent between the two. If the price of the BMW falls to $34,114.16, she will buy the BMW.
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a. True b. False
Assume that a firm is operating in the short run and all resources are fixed except for labor. The total product curve for this firm will increase at a decreasing rate because:
a. value of marginal product of labor is unchanged as more labor is hired. b. marginal product of labor will decline as more labor is hired. c. value of marginal product of labor will increase as more labor is hired. d. marginal product of labor is unchanged as more labor is hired.
When new goods are introduced, consumers have more variety from which to choose. As a result, each dollar is worth
a. more, and the cost of living increases. b. more, and the cost of living decreases. c. less, and the cost of living increases. d. less, and the cost of living decreases.
Refer to the budget line shown in the diagram above. Given the same money income, reductions in the prices of both products C and D will:
A) shift the budget line outward on the horizontal axis, but leave it anchored at "10" on the vertical axis. B) shift the budget line to the left. C) shift the budget line to the right. D) have no effect on the budget line.