Chapter 3 Macro Economics

You have been invited to play a 4-hour round of golf that has a value to you of $50. The total price to play the round of golf is $35. net benefit of the round of golf Now assume that you have a job that pays you $6 per hour. Would you be optimizing to accept the invitation to play golf? To optimize, you (should or should not) play golf?

$15, should not

You are hired as a consultant for a local restaurant. It is considering whether to close at 9:00 p.m., stay open an extra hour (10:00 p.m.), or close earlier (8:00 p.m.). Based on wages and utility bills, the added cost (the marginal cost) of staying open for each additional hour is $161. If the additional revenue (the marginal revenue) during the last hour is $191, the profit earmed during the last hour of operation will be $_____. If the additional revenue during the last hour is $101, the profit earned during the last hour of operation will be $____. If the additional revenue (the marginal revenue) from staying open until 10.00 p.m. is $161, the profit eamed during the last hour of operation will be $___

$30 $-60 $0

Do you have the option to play tennis or a round of golf (but nor both). The tennis match requires you to take two hours off from work. A round of golf requires you to take four hours off from work. Playing tennis has value to you equal to $70 wow golf has value to you equal to $125. Tennis courts are publicly available at no cost, but golf cost $50 per round. Suppose your wage from working is $6 per hour. The net benefit from playing tennis is $_____ and the net benefit from playing gold is $_____. Therefore you should play ________.

$58 $51 Tennis

When John determines what choice of walking shoes will give him the best bang for his buck, he is using optimization based on _______. When Janet looks at the additional value of purchasing a new laptop to the cost as compared to keeping her old one, she is using optimization based on ___________.

1.) total value 2.) marginal analysis

Suppose there are four products that Samuel can purchase. Samuel obtains a discount on each of the products. The total benefit obtained by Samuel through discounts is calculated by finding out the difference in the actual price of the product and the discounted price of the product. This is shown on the Y axis of the graph. The X axis of the graph represents the products which Samuel can purchase. In this case, Samuel will purchase _____ product as an optimal product.

2

Suppose your total benefit from eating slices of pizza (value in dollars) is 8x -x?. where x is the number of slices of pizza. Pizza is sold by the slice and costs $2 per slice, and so the total cost of pizza is 2x. Using optimization in levels, what is the optimal amount of pizza for you to eat? Your net benefit is maximized _____ slices of pizza.

3

When optimizing for total value, opportunity cost must be ________ total cost. Assuming _________ benefits, the lowest cost option is the optimal choice.

Added to Equal

Some people choose to live close to the city center; others choose to live away from the city center and take longer commute to work every day. Does this mean that thise who stay away from the city center are being irrational?

No becazue their oppurtunity cost of commuting must be lower

Determine if the following statements better describe optimization in levels or optimization in differences. John is attempting to decide on a movie. He determines that the new Batman movie provides him with $5 more of a net benefit than the new Spiderman

D. Optimization differences, since he is calculating the change in net benefits between alternatives.

There is a proverb "anything worth doing is worth doing well." Do you think an economist would agree with this proverb?

No, because the marginal cost of extra effort may be greater than the marginal benefit.

Optimization in differences, Nikki decided to take the first available parking space as she entered the student lot. She felt that the first available space had a $5 premium compared with all other possible spaces since she did not want to risk being late for her exam.

Optimization in differences, since she is calculating the change in net benefits between alternatives.

Determine if the following statements better describe optimization in levels or optimization in differences. Marcia finds that the net benefit of flying from Chicago to Honolulu on a non-stop United Airlines flight is $400, and the net benefit for the same trip flying on a one-stop America flight is $200

Optimization in levels, since she is comparing the net benefits between alternatives.

Optimization Reagan determined that the net benefit of taking the combination of two lecture courses and an online lecture course was $100. The same three courses online gave her a net benefit of $80, and all three in a lecture-based format gave her benefit of $90.

Optimization in levels, since she is comparing the net benefits between alternatives.

Optimization in levels examines_______while optimization in differences analyzes_____

Total net benefits of alternatives The change in net benefits

Does the principle of optimization imply that people always make the best choices?

Yes, it is a good approximation for the decisions people make.

Economists mostly use optimization in differences, as opposed to optimization in levels, because...

differences, as opposed comparing different features of alternatives is simple.

Optimization is the process that describes

the choices that businesses make.