Econ 222 Chapter 3
Optimization in levels
calculates the total net benefit of different alternatives then choose option with highest net benefit
margin
difference between two things
The program can be completed in 6 months, 12 months, or 15 months. The tuition and fees are $38,600, $35,000 and $28,600 respectively. Professor Jobs assumes the opportunity cost of time to a student for the program is $2,000 per month. Therefore, the professor concludes that the optimal decision for the student is to choose the ___ month program. If professor Jobs assumes the opportunity cost of time to a student for the program is $500 per month instead of $2,000 per month, then the $2,000 per month cost curve lies ___the $500 per month cost curve. The optimal program for students when the opportunity cost of time for the program is $500 per month _____ when compared to the scenario with the opportunity cost of time is $2,000 per month.
1) 6 month program 2) above 3)switches to 15 month program
Suppose your total benefit from eating slices of pizza (value in dollars) is 6x−x^2, 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 at __ slices of pizza.
2
You have been invited to play a 4-hour round of golf that has a value to you of $80. The total price to play the round of golf is $45 The net benefit of the round of golf is ? 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 ?
Net Benefit: 80-45= 35 6x4= 24,, so play golf
What is the difference between marginal values and average values?
Marginal Value: additional benefit cost form consuming an additional unit of good. Average value: benefit or cost per good
marginal analysis
analysis that involves comparing marginal benefits and marginal costs
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 _____? .
Total Value Marginal Analysis
Marginal Cost
extra cost generated by moving from one feasible alternative to the next feasible alternative.
Optimization in differences
look at the change in net benefit of one option compared to another
Principle of optimization at the margin
states that an optimal feasible alternative has the property that moving to it makes you better off and moving away from it makes you worse off
net benefit
the difference between the marginal benefit and the marginal cost of an option (subtract)
Optimization in levels examines ______, while optimization in differences analyzes _______.
total net benefits of alternatives; the change in net benefits
Optimization
trying to choose the best feasible option, given the available information
Decision Making Using Marginal Analysis
when marginal cost exceeds benefit (don't do it)
