Class 6-2010

Class 6-2010 - Managerial Economics Class 6Tuesday Sept 28...

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THE UNIVERSITY OF BRITISH COLUMBIA Managerial Economics Class 6–Tuesday, Sept. 28 1. Announcements 2. Applying Consumer Choice Theory to BOGOF Promotions 3. Introduction to Production 4. Short Run Production 5. Long Run Production 6. Returns to Scale 7. Technological Progress 8. Summary THE UNIVERSITY OF BRITISH COLUMBIA 1. Announcements Assignment 1 is posted on Vista. It is due in class next Thursday. I have re-posted notes for all classes so far. Clicker questions are included (with correct answers indicated except for today’s class). In response to requests I am now posting larger notes so they will be easier to read ( 2 slides per page instead of 4).
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THE UNIVERSITY OF BRITISH COLUMBIA Consumer Choice: Clicker Question 1 Angela is planning to stay in a resort hotel for 2 nights. However, the hotel introduces the following BOGOF promotion: For anyone who pays for three nights, the hotel offers a 4 th night for free. We can draw an indifference curve diagram with hotel nights on the horizontal axis. Which of the following statements is true? a.This promotion leads to a vertical segment in Angela’s budget line. b.The promotion necessarily causes Angela to extend her stay beyond what she would choose otherwise. c.The promotion necessarily causes Angela to spend more on other goods. d.The promotion can raise Angela’s utility only if she decides to stay for the extra nights. e.None of the above. THE UNIVERSITY OF BRITISH COLUMBIA Angela’s Choice Angela is considering a vacation at a resort hotel in Mexico. For anyone who pays for three nights, the hotel offers a 4 th night for free. The resulting budget line is the dark blue line. Without the promotion Angela stays at point x and stays for two nights. As drawn, the promotion causes Angels to consumer at point y, paying for 3 nights and getting the 4 th for free.
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THE UNIVERSITY OF BRITISH COLUMBIA Clicker Question 2 Our theory of consumer choice states that, in order to maximize utility, a consumer who consumes two particular goods must set the MRS equal to the price ratio (MRT). a.The theory of consumer choice must be wrong, as most consumers have never heard of these concepts and therefore do not set MRS = MRT. b.The theory is a correct logical statement but consumers might fail to maximize utility. c.A theory does not have to be understood by a group of people in order to apply to them. d.The theory might not be precisely correct but might still be a useful approximation.
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This note was uploaded on 01/19/2011 for the course COMMERCE 290 taught by Professor Brianogram during the Spring '09 term at UBC.

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Class 6-2010 - Managerial Economics Class 6Tuesday Sept 28...

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