Benefits, Costs and Maximization††††††††††††† Name: (††††††† )
1. All rational decision making involves a balancing of the (†† ) and (†† ) of the decision.
an individual makes a purchase or takes an action, he or she receives
satisfaction, or (†† )
.† The cost of a purchase or an
action can be measured by the value of the alternative forgone to make the
purchase or take the action, or by its (†† ) cost.†
3. The satisfaction from consuming a particular number of units of a good, service, or activity is (†† ) benefit or utility.† The change in total satisfaction from consuming and additional unit of a good, service, or activity is (†† ) benefit or utility.
4. If the total utility from consuming 5 units of an item is 300 points, the total utility from consuming 6 units is 320 points, and the total utility from consuming 7 units is 330 points, then the marginal utility of the 6th unit consumed is (†† ) points and the marginal utility of the 7th unit consumed is (†† ) points.
5. The Law of Diminishing Marginal Utility states that, as additional units of a good, service, or activity are consumed, a point is eventually reached where each additional unit consumed adds (more,less) to total utility, or has a (higher,lower) marginal utility, than the unit consumed just before it.
6. The cost of consuming a specified number of units of a good, service, or activity is (†† ) cost.† The change in total cost from consuming one more unit of a good, service, or activity is (†† ) cost.
7. If the marginal cost of the first unit of an activity is 10 utility points, the marginal cost of the 2nd unit is 30 utility points, the marginal cost of the 3rd unit is 60 utility points, and the total cost of no units of the activity is zero, then the total cost of the 1st unit of the activity is (†† ) utility points, the total cost of 2 units of the activity is (†† ) utility points, and the total cost of 3 units is (†† ) utility points.
8. The objective of making a purchase or taking an action is to maximize (†† ) (†† ), which is total benefit minus total (†† ).
9. There are two net benefit maximization rules.† Net benefit is maximized where total (†† ) exceeds total (†† ) by the greatest amount.† Net benefit is also maximized where marginal benefit (†† ) marginal cost.
10. When marginal benefit is greater than marginal cost, net benefit (†† ); when marginal benefit is less than marginal cost, net benefit (†† ).
11. Graphically, net benefit is positive as long as the total (†† ) curve is above the total (†† ) curve.† Also, the vertical distance by which the total benefit curve exceeds the total cost curve is greatest at the point where the marginal benefit curve (†† ) the marginal cost curve.
12. To maximize profit, a business evaluates the (†† ) from the sale of its product and the (†† ) of producing and selling the product at various levels of output.
13. The dollar payments made by a business to outsiders who provide land, labor, and capital are (†† ) costs.† The opportunity costs to a business owner from using his or her own resources in the business rather than in some other way are (†† ) costs, which must be recovered by the owner for the business to (†† ).† The return necessary to cover these costs is called (†† ) profit.
14. In economics, the total cost of operating a business is equal to both (†† ) and (†† ) costs, or includes (†† ) profit.
15. Profit greater than normal profit is called (†† ), or (†† ) profit.† If total profit earned is $50,000 and normal profit is $30,000, economic profit is (†† ).
16. The total amount received from selling a particular number of units of a firmís product is total (†† ).† The change in total revenue when one more unit of a firmís product is demanded is (†† ) (†† ).† Total revenue equals (†† ) times the quantity demanded.
17. If the total revenue from selling 4 units of a product was $1,000, and the total revenue from 5 units was $1,500, the marginal revenue from the 5th unit would be (†† ).
18. If the total revenue from selling 10 units of a product was $2,000, and the marginal revenue from the 11th unit was $25, the total revenue from 11 units would be (†† ).
19. The cost of producing a particular number of units of a product is (†† ) (†† ); the change in total cost from producing one more unit of a product is (†† ) (†† ).
20. The primary economic objective of a business is to maximize (†† ), which is equal to total revenue minus total (†† ).
21. There are two profit-maximizing rules.† A firm will maximize its profit by operating where total revenue (†† ) total cost by the greatest amount.† Profit is also maximized by operating where marginal revenue (†† ) marginal cost.
22. If marginal revenue is greater than marginal cost, profit (†† ); if marginal revenue is less than marginal cost, profit († †).
23. Graphically, a firm is maximizing its profit by operating where the (†† ) (†† ) curve exceeds the (†† ) (†† ) curve by the greatest amount, or where the marginal revenue curve (†† ) the marginal cost curve.
24. The effect of an action on another person or thing that is not a primary party to the action is called an (†† ).† As a result of this effect, the level of activity that maximizes private benefit might not maximize (†† ) net benefit.
25. Air pollution is an example of a (†† ) externality, which is a ( ††) to a non-primary party to an action.† the reduction in robberies in an area because of a small but active neighborhood watch group is an example of a (†† ) externality, which is a (†† ) to a non-primary party to an action.
26. The private benefits from an action plus any positive externalities from the action equal the (†† )benefits of the action.† The private costs of an action plus any negative externalities resulting from the action equal the (†† ) costs of the action.† The social benefits minus the social costs of an action equal societyís (†† ) (†† ) from the action.
27. If there are positive externalities associated with an activity, the amount of the activity that maximizes societyís net benefit is (†† ) than the amount that maximizes private net benefit.† If an activity creates negative externalities, the amount of the activity that maximizes societyís net benefit is (†† ) than the amount that maximizes private net benefit.
28. Many decisions in the
29. In making collective decisions, as in making individual decisions, people weigh the (†† ) and (†† ) of their choices. †For example, some people do not seek information about a candidate or an issue before an election because the perceived (†† ) of acquiring the information is greater than the perceived (†† ).† these people choose to be (†† ) (†† ).
30. Persons who share and promote a common position on an issue are a (†† ) (†† ) group.