bu-224 micro economics – week 6 seminar welcome to
TRANSCRIPT
![Page 1: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/1.jpg)
BU-224 Micro Economics – Week 6 Seminar
Welcome to
![Page 2: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/2.jpg)
Overview
Welcome
Review of Week 5 Material
Questions
Unit 6 Material
Questions
Preview of Unit 7
End
![Page 3: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/3.jpg)
Consumer Theory – “Rational Consumer”
Diminishing Marginal Utility
Unit 5 Material
![Page 4: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/4.jpg)
Consumption Possibilities
The budget line separates combinations that are affordable from combinations that are unaffordable.
![Page 5: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/5.jpg)
Consumption Possibilities
![Page 6: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/6.jpg)
• Changes in Prices• If the price of one good rises when the prices of
other goods and the budget remain the same, consumption possibilities shrink.
• If the price of one good falls when the prices of other goods and the budget remain the same, consumption possibilities expand.
Consumption Possibilities
![Page 7: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/7.jpg)
Consumption Possibilities
Shows the effect of a fall in the price of water. On the initial budget line, the price of water is $1 a bottle (and gum is 50 cents a pack), as before.
![Page 8: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/8.jpg)
Consumption Possibilities
When the price ofwater falls from $1 a bottle to 50¢ a bottle, the budget line rotates outward and becomes less steep.
![Page 9: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/9.jpg)
Questions
![Page 10: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/10.jpg)
Overview
Welcome
Review of Week 5 Material
Questions
Unit 6 Material
Questions
Preview of Unit 7
End
![Page 11: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/11.jpg)
Marginal Analysis
Production Function
Homework Assignment
Discussion
Unit 6 Material
![Page 12: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/12.jpg)
Marginal Analysis
Marginal analysis is used to assist people in allocating their scarce resources to maximize the benefit of the output produced.
Simply getting the most value for the resources used.
![Page 13: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/13.jpg)
Marginal analysis: The analysis of the benefits and costs of the marginal unit of a good or input.
(Marginal = the next unit)
Marginal Analysis
![Page 14: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/14.jpg)
A technique widely used in business decision-making and ties together much
of economic thought.
In any situation, people want to maximize net benefits:Net Benefits = Total Benefits - Total Costs
Marginal Analysis
![Page 15: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/15.jpg)
To do marginal analysis, we can change a variable, such as the:
• quantity of a good you buy, • the quantity of output you produce, or• the quantity of an input you use.
This variable is called the control variable .
Marginal Analysis
![Page 16: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/16.jpg)
Marginal Analysis
![Page 17: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/17.jpg)
Marginal analysis focuses upon whether the control variable should be increased by one more unit or not.
Marginal Analysis
![Page 18: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/18.jpg)
1. Identify the control variable (cv).
2. Determine what the increase in total benefits would be if one more unit of the control variable were added.
This is the marginal benefit of the added unit.
Marginal Analysis
![Page 19: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/19.jpg)
3. Determine what the increase in total cost would be if one more unit of the control variable were added.
This is the marginal cost of the added unit.
Marginal Analysis
![Page 20: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/20.jpg)
4. If the unit's marginal benefit exceeds (or equals) its marginal cost, it should be added.
Marginal Analysis
![Page 21: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/21.jpg)
Because:
Marginal Benefit = Increase in Total Benefits per unit of control variable
TR / Qcv = MR
where cv = control variable
Marginal Analysis
![Page 22: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/22.jpg)
Marginal Cost = Increase in Total Costs
per unit of controlvariable
TC / Qcv = MC
Marginal Analysis
![Page 23: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/23.jpg)
So:
Change in Net Benefits =
Marginal Benefit - Marginal Cost
Marginal Analysis
![Page 24: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/24.jpg)
When marginal benefits exceed marginal cost, net benefits go up.
So the marginal unit of the control variable should be added.
Marginal Analysis
![Page 25: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/25.jpg)
A firm's net benefit of being in business is PROFIT.
The following equation calculates profit:
PROFIT = TOTAL REVENUE - TOTAL COST
Marginal Analysis
![Page 26: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/26.jpg)
Where:
TR = (Poutput X Qoutput)
n
TC = (Pinputi X Qinputi
)
i=1
Assume the firm's control variable is the output it produces.
Marginal Analysis
![Page 27: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/27.jpg)
International Widget is producing fifty widgets at a total cost of $50,000 and is selling them for $1,200 each for a total revenue of $60,000.
If it produces a fifty-first widget, its total revenue will be $61,200 and its total cost will be $51,500.
Marginal Analysis
![Page 28: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/28.jpg)
Should the firm produce the fifty-first widget?
Marginal Analysis
![Page 29: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/29.jpg)
The fifty-first widget's marginal benefit is $1,200
($61,200 - $60,000) / 1
This is the change in total revenue from producing one additional widget and is called marginal revenue.
Marginal Analysis
![Page 30: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/30.jpg)
The firm's marginal cost is $1,500 ($51,500 - $50,000) / 1
This is the change in total cost from producing one additional widget.
This extra widget should NOT be
produced because it does not add to profit:
Marginal Analysis
![Page 31: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/31.jpg)
Change in Net Revenue (Benefit) =
Marginal Revenue - Marginal Cost
- $300 = $1,200 - $1,500
Marginal Analysis
![Page 32: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/32.jpg)
Qcv Qwidgets TR TR TC TC
50 60,000 50,000
1 1,200 1,500
51 61,200 51,500
MR = TR / Qcv = $1,200 / 1 = $1,200
MC = TC / Qcv = $1,500 / 1 = $1,500
Marginal Analysis
![Page 33: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/33.jpg)
What is the minimum price consumers would have to pay to get a 51st Widget produced?
• Consumers would have to pay at least $1,500 for the extra widget to get the producer to increase production.
Marginal Analysis
![Page 34: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/34.jpg)
• Marginal analysis forms the basis of economic reasoning.
• To aid in decision-making, marginal analysis looks at the effects of a small change in the control variable.
Marginal Analysis
![Page 35: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/35.jpg)
• Each small change produces some good (its marginal benefit) and some bad (its marginal cost).
• As long as there is more "good" than "bad", the control variable should be increased (since net benefits will then be increased).
Marginal Analysis
![Page 36: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/36.jpg)
Production Function
![Page 37: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/37.jpg)
Production Function
![Page 38: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/38.jpg)
Production Function
![Page 39: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/39.jpg)
Production Function
![Page 40: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/40.jpg)
• The accompanying table shows a boat manufacturer’s total cost of producing boats.
Week 6 Assignment
![Page 41: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/41.jpg)
• What is this manufacturer’s fixed cost?• For each level of output, calculate the variable cost
(VC). For each level of output except zero output, calculate the average variable cost (AVC), average total cost (ATC), and average fixed cost (AFC)
Week 6 Assignment
![Page 42: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/42.jpg)
• Suppose a business experiences a sudden increase in its fixed costs. For example, suppose property taxes increase dramatically. What impact, if any, will this have the firm's AFC (average fixed cost), AVC (average variable cost), ATC (average total cost) and MC (marginal cost) and therefore these cost curves? Why?
Discussion
![Page 43: BU-224 Micro Economics – Week 6 Seminar Welcome to](https://reader036.vdocument.in/reader036/viewer/2022062421/56649d765503460f94a576b9/html5/thumbnails/43.jpg)
Thank you for attending. I look forward to seeing you next week!