Why do economists mostly use optimization in differences, as opposed to optimization in levels?
What will be an ideal response?
For the sake of simplicity and intuition, economists mostly use optimization in differences. Optimization in differences is simple because everything else about the two alternatives that are being compared except the particular attributes that are different can be ignored. For example, suppose that two apartments are both near good restaurants, both have good access to public transportation, and both have a Laundromat down the street. The two attributes that are different, for instance rent and street noise, are compared while ignoring all the attributes that are the same about the two apartments.
Optimization in differences is also intuitive. When comparing two options, it makes sense to focus on what makes them different. Marginal analysis emphasizes this point, by comparing differences instead of levels.
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Once a product becomes established, network externalities may create ________ costs that make consumers reluctant to buy a new product with better technology
A) switching B) marginal C) external D) implicit
Which of the following is correct?
A) TC = TFC + TVC B) TC = TFC - TVC C) TC = TFC TVC D) TC = TFC / TVC
The aggregate demand curve shows the
A. amount of goods producers will produce as production costs fall. B. total amount of planned expenditures on goods and services at each possible price level. C. total amount of nominal goods that the participants in the economy want to purchase. D. total amount of real goods that foreigners want to purchase.
In the above figure, at a price of $4 per unit, a profit-maximizing perfectly competitive firm will
A) shut down because its total revenue is less than its variable costs. B) incur an economic loss. C) produce 5 units. D) Both answers A and B are correct.