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Mba 500

In: Business and Management

Submitted By ff8hman
Words 658
Pages 3
Ch-7
1.2 What is the definition of marginal utility? What is the law of diminishing marginal utility? Why is marginal utility more useful than total utility in consumer decision making?
Answer: Marginal utility is the additional utility that a consumer receives from purchasing one addition unit of a good or service. Law of diminishing marginal utility is the principle that for a given period time, the additional satisfaction experienced by consuming more of a good or service will diminish. Consumer's budget constraint determines that money that consumer can spend is limited. Thus the key to making the best consumption is to maximize utility by following the rule of equal marginal utility per dollar spent. That is why marginal utility is more useful.

4.2 Define behavioral economics. What are the three common mistakes that consumers often make? Give an example of each mistake.
Answer: The study of psychology in which people make choices that do not appear to be economically rational. Three common mistakes:
They take into account monetary costs but ignore nonmonetary opportunity costs. According to endowment effect, A fan who wins a ticket for Super Bowl may not be willing to sell the ticket at higher price.
They fail to ignore sunk costs. A fan bought a ticket to a play, but friends invites you to a club. The fan should ignore the money spent on the ticket to make a decision.
They are unrealistic about their future behavior. Some people continue smoking because they believe they could give it up in the future. Usually they won't.

Ch-8
2.1 What is the difference between the short run and the long run? Is the amount of time that separates the short run from the long run the same for every firm?
Answer: Compare to short run that some factors are variable and at least one of a firm's inputs is fixed, Long run is the time period in which there are no

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