3. Column 1 Column 2 Column 3 Column 4 Column 5 Dollars Q A MU Q B MU Q C MU Q D
ID: 1099196 • Letter: 3
Question
3.
Column 1 Column 2 Column 3 Column 4 Column 5
Dollars
QA MU QB MU QC MU QD MU Saved MU __________________________________________________________
1 36 1 15 1 24 1 72 1 5
2 30 2 12 2 15 2 54 2 4
3 24 3 8 3 12 3 45 3 3
4 18 4 7 4 9 4 36 4 2
5 13 5 5 5 7 5 27 5 1
6 7 6 4 6 5 6 18 6 .5
7 4 7 3 7 2 7 15 7 .1
Columns 1 through 4 of the above table show the marginal utility, measured in utils, which Mr. Jones would get by purchasing various amounts of products A, B, C, and D. Column 5 shows the marginal utility he gets from saving. (HINT: The marginal utility from saving each additional dollar and the marginal utility per dollar from saving are equal.) Assume that the prices of A, B, C, and D are $24, $4, $6, and $18, respectively, and that Mr. Jones has a money income of $106.
a) What is the total number of utils that Mr. Jones will receive in maximizing his satisfaction? __________.
b) How many dollars will he choose to save? _________.
4. If at 80 units of output, the ATC is $912.50 per unit and the AVC is $600 per unit, what are the firm
Explanation / Answer
a. We first need to calculate MU/P for all goods. The equilibrium happens where MU/P is equal for all goods for which quantity consumed is positive and all budget is exhausted.
A
B
C
D
Save
Price
24
4
6
18
1
1
1.50
3.75
4.00
4.00
5.00
2
1.25
3.00
2.50
3.00
4.00
3
1.00
2.00
2.00
2.50
3.00
4
0.75
1.75
1.50
2.00
2.00
5
0.54
1.25
1.17
1.50
1.00
6
0.29
1.00
0.83
1.00
0.50
7
0.17
0.75
0.33
0.83
0.10
When Mr Jones buys: 3 units of B, 3 units of C, 4 units of D and 4 dollars saved, the entire mone y spent and saved = $106
Also at this point, MU(B)/P(B) = MU(C)/P(C) = MU(D)/P(D) = MU(Saved)/P(Saved) = 2
Total utility = 31 + 45 + 189 + 13 = 278
b. He will choose to save 4 dollars.
4. Fixed costs = Q*(ATC - AVC) = 80*(912.50 - 600) = 80*312.50 = 25000
TVC = Toral costs - Total fixed costs = 90000 - 25000 = 65000
AVC = TVC/Q = 65000/100 = 650
If at 80 units of output, the ATC is $912.50 per unit and the AVC is $600 per unit, what are the firm
A
B
C
D
Save
Price
24
4
6
18
1
1
1.50
3.75
4.00
4.00
5.00
2
1.25
3.00
2.50
3.00
4.00
3
1.00
2.00
2.00
2.50
3.00
4
0.75
1.75
1.50
2.00
2.00
5
0.54
1.25
1.17
1.50
1.00
6
0.29
1.00
0.83
1.00
0.50
7
0.17
0.75
0.33
0.83
0.10
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