The first column shows the number of donuts consumed, while the second and third columns (respectively) show Shane's and Miriam's marginal personal use values. Assume that Shane's initial endowment is three donuts, while Miriam's initial endowment is 13 donuts. Suppose that Miriam is allowed to set the price at which Shane can purchase additional donuts (beyond his initial endowment of three donuts). What price would Miriam set if her objective were:
To maximize her Total Revenues (that is, the number of donuts Shane purchases multiplied by the price set by Miriam);
To maximize Miriam's Producer Surplus (that is, Total Revenues minus Miriam's Total Costs, defined as her cumulative opportunity cost of selling donuts to Shane rather than consuming them herself);
To maximize Shane's and Miriam's Total Surplus (that is, Consumer Surplus plus Producer Surplus)
For each case, provide both your answers and a brief explanation of how you derived it
Number of Donuts
Shane's Marginal Personal Use Value
Miriam's Marginal Personal Use Value
0
$0.00
$0.00
1
$2.00
$1.50
2
$1.90
$1.45
3
$1.80
$1.40
4
$1.70
$1.35
5
$1.60
$1.30
6
$1.50
$1.25
7
$1.40
$1.20
8
$1.30
$1.15
9
$1.20
$1.10
10
$1.10
$1.05
11
$1.00
$1.00
12
$0.90
$0.95
13
$0.80
$0.90
14
$0.70
$0.85
15
$0.60
$0.80
16
$0.50
$0.75
17
$0.40
$0.70
18
$0.30
$0.65
19
$0.20
$0.60
20
$0.10
$0.55
Initial allocations
The first column shows the number of donuts consumed, while the second and third columns (respectively) show Shane's and Miriam's marginal personal use values. Assume that Shane's initial endowment is three donuts, while Miriam's initial endowment is 13 donuts. Suppose that Miriam is allowed to set the price at which Shane can purchase additional donuts (beyond his initial endowment of three donuts). What price would Miriam set if her objective were:
To maximize her Total Revenues (that is, the number of donuts Shane purchases multiplied by the price set by Miriam);
To maximize Miriam's Producer Surplus (that is, Total Revenues minus Miriam's Total Costs, defined as her cumulative opportunity cost of selling donuts to Shane rather than consuming them herself);
To maximize Shane's and Miriam's Total Surplus (that is, Consumer Surplus plus Producer Surplus)
For each case, provide both your answers and a brief explanation of how you derived it
Number of Donuts | Shane's Marginal Personal Use Value | Miriam's Marginal Personal Use Value | |
0 | $0.00 | $0.00 | |
1 | $2.00 | $1.50 | |
2 | $1.90 | $1.45 | |
3 | $1.80 | $1.40 | |
4 | $1.70 | $1.35 | |
5 | $1.60 | $1.30 | |
6 | $1.50 | $1.25 | |
7 | $1.40 | $1.20 | |
8 | $1.30 | $1.15 | |
9 | $1.20 | $1.10 | |
10 | $1.10 | $1.05 | |
11 | $1.00 | $1.00 | |
12 | $0.90 | $0.95 | |
13 | $0.80 | $0.90 | |
14 | $0.70 | $0.85 | |
15 | $0.60 | $0.80 | |
16 | $0.50 | $0.75 | |
17 | $0.40 | $0.70 | |
18 | $0.30 | $0.65 | |
19 | $0.20 | $0.60 | |
20 | $0.10 | $0.55 | |
Initial allocations |
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Related questions
Michael spends all of his income on coffee and donuts. A coffee costs $2.50 and a donut costs $2.00. At his current consumption level, the marginal utility for coffee is 30 utils, and the marginal utility for a donut is 60 utils. Which statement best describes what Michael needs to do to maximize his utility?
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Question 2
What is it called when the marginal utility derived from the last dollar spent on each good is the same across all goods and the last dollar spent uses all of the available budget for the purchase of those goods?
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Question 3 (1 point)
What does the economic theory of marginal utility infer?
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Question 4
Kate is addicted to chocolate and does not care how much it costs. In fact, she spends more than $20 a week on chocolate. What can be concluded about elasticity in her buying decisions?
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Question 5 (1 point)
Why does the demand for a good become relatively more elastic?
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Question 6 (1 point)
Assume the price of chicken per pound is $3.49 and that Americans purchase 10 million pounds per chicken every month. If the price of chicken increases to $5.49 per pound, identify what will occur to consumer surplus?
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Question 7 (1 point)
What is another name for the difference between the price that consumers are willing to pay for a good and a lower price that they may actually have to pay?
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Question 8
Adam, Brian, Robert, and Sam all want to attend a football game. The admission price is $48. Adam is willing to pay $59 for the ticket. Brian is willing to pay $39. Robert is willing to pay $45, and Sam is willing to pay $55. Based on this information, who will go to the game?
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Question 9 (1 point)
Lily is willing to pay $10 for one bracelet and $5 for a second. Patty is willing to pay $12 for one bracelet and $2 for a second. If the price is currently $8 per bracelet, identify what is the total consumer surplus after Lily and Patty make their purchases?
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Question 10 (1 point)
Manfred is willing to shovel one driveway for $25, a second for $30, and a third for $35. Assume that the market rate for shoveling driveways is $32. How many driveways will Manfred shovel, what will be his total revenue, and what will be his producer surplus?
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Question 11 (1 point)
What would the difference between the price that producers receive and the lower price at which they are willing to sell the good be called?
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Question 12 (1 point)
What will happen when there is an increase in the price of eBook downloads?
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Question 13 (1 point)
When is price elasticity of demand utilized to measure how an individual changes the quantity they demand?
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Question 14 (1 point)
Assume Mary consumes only tea and pastries. A cup of tea costs 5 euros and a pastry costs 8 euros. Her weekly income is 450 euros. Mary always drinks 2 cups of tea for every pastry she consumes. What is Maryâs optimal weekly consumption bundle?
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Question 15 (1 point)
When is producer surplus a positive value?
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1. In a market economy, the high salaries of some star baseball players such as Adrian Gonzalez, are determined by
Team owners, based on the total number of star athletes they plan to hire. |
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B |
advertising companies, based on what they are willing to pay to advertise their products at baseball games. |
|
C |
the interaction of the demand for star athletes and the supply of star athletes. |
|
D |
consumers, based on their willingness to watch baseball games. |
2. Demand in factor markets differs from demand in product markets in that
A |
the demand for a factor of production is difficult to determine. |
|
B |
the demand for a factor of production is influenced by workers' productivity and by the producers' expected sales revenues, not by tastes and preferences of consumers. |
|
C |
demand for a factor of production is based on the tastes and preferences of firms. |
|
D |
demand for a factor of production is based on the tastes and preferences of resource owners. |
|
3. The demand for labor is described as a derived demand because
A |
it is derived by workers seeking to earn income to fund the consumption of goods and services. |
|
B |
it is derived by producers seeking to make profits by starting new businesses. |
|
C |
it is derived from the demand for products that use labor in the production process. |
|
D |
it is derived from government institutions that rely on labor markets for the purpose of raising tax revenue. |
4. Which of the following is not an example of a derived demand?
A |
Several of the animated films released between 1999 and 2001 failed to earn a profit, which caused some companies to stop making these films, thereby decreasing the demand for animators. |
|
B |
Seth Bullock, a personal injury attorney, complains that he is earning far less now than a few years ago largely because personal injury cases have been undercut by state laws limiting class-action suits and payouts on damages. |
|
C |
Millicent Manning, the owner of a furniture store, is concerned that her sales have fallen for the past six months. She attributes this to the downturn in the real estate market. |
|
D |
As advancements in medical technology increase the safety and success of laser eye surgery, the demand for opticians has decreased. |
5. Marginal revenue product for a perfectly competitive seller is equal to
A |
the output price multiplied by the total product of labor. |
|
B |
the output price multiplied by the number of workers hired. |
|
C |
the change in total revenue that results from hiring another worker. |
|
D |
the marginal cost of production. |
6. What is the difference between labor's marginal product and marginal revenue product?
A |
The marginal product of labor is the increase in output as a result of hiring an additional worker while the marginal revenue product of labor is the increase in profit as a result of hiring an additional worker. |
|
B |
The marginal revenue product of labor is the dollar value of hiring an additional worker while the marginal product of labor is the increase in the firm's physical output as a result of hiring an additional worker. |
|
C |
The marginal product of labor is the additional labor's contribution to the firm's total output while the marginal revenue product is the additional labor's contribution to the firm's total sales revenue. |
|
D |
Labor's marginal product is a measure of labor's productivity while labor's marginal revenue product is a measure of labor's ability to sell the firm's products. |
7. What is the difference between a firm's marginal revenue and its marginal revenue product?
A |
Marginal revenue is the change in sales revenue from selling one more unit of output while marginal revenue product is the profit earned from hiring one more worker. |
|
B |
Marginal revenue is the change in sales revenue from selling one more unit of output while marginal revenue product is the change in total revenue from hiring one more worker. |
|
C |
Marginal revenue is the increase in revenue when a firm raises its output price while marginal revenue product is the increase in the marginal product when a firm hires an additional worker. |
|
D |
There is no difference between the two terms. |