AB224_02_unit4.docx

# Explain your reasoning and show any calculations no

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Explain your reasoning and show any calculations. No, she needs to buy one more chicken and stay away from the fries. The fries diminish her utility faster and aren’t good for her. d. If Jane is not maximizing her utility with the original purchase, remembering the Law of Diminishing Marginal Utility, would she be better off buying one less fries and one more chicken sandwich? Explain your reasoning and show any calculations. Yes, because she is more satisfied, and her utility is better with the chicken. Buying chicken maximizes her utility. 2. Remembering the Learning Practice in Unit 3, in the year 107 WBCE (Way Before the Common Era) the Gondwanaland Chairman of Production reported that the gosum berry growers were able to meet an average demand of 700 barrels of gosum berries per month at an average a price of \$70 per barrel. In the year 108 WBCE the growers were plagued with a gosum berry bug infestation that reduced average output, causing production to fall to only 600 barrels per month, causing the price to rise to \$84 per barrel. The following table shows the Chairman’s report: Year (WBCE) Monthly barrels of gosum berries demanded Price per barrel 107 700 \$70 108 600 \$84 a. Using the midpoint method, calculate the price elasticity of demand for Gondwanaland gosum berries. Explain what this price elasticity of demand means? v.6.16.17 3 of 5

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Unit 4 AB224 | Microeconomics 600-700=-100 600+700/2=1300 1300/2=0.0384 84-70=14 84+70/2=154 154/2=0.0454 0.03846/0.0454= 0.845 inelastic not sensitive b. What is the monthly average total revenue for year 107, and the monthly average total revenue for year 108? How do these numbers compare to each other? Year 107} 700*70=49,000 Year 108 600*84=50,400 Find change = 49,000 -50,400 = - 1,400 Year (WBCE) Monthly barrels of gosum berries demanded Price per barrel Monthly average total revenue 107 700 \$70 108 600 \$84 Change in average total monthly revenue c. Using your answer to part a. above, how could you have predicted this change in total monthly revenue? By looking at the amount compared to the price you could tell even though they sold less the price was higher so the made more off of less product. v.6.16.17 4 of 5
Unit 4 AB224 | Microeconomics 3. The Gondwanaland Chairman of Production reported that the new Altair chariots (most modern, horse drawn family chariot) had a PRICE elasticity of 3 and an INCOME elasticity of 2. The supply of these Altair chariots is elastic. Evaluate the following statements and explain why you think they

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