In this week’s discussion we focus on consumer decision-making based on utility theory, opportunity costs, and economic profits. (a) Two economists are attending a conference in an unfamiliar city. At the end of the day, Economist A states she is “in the mood for a high-quality dinner” and after narrowing her search to two fine-dining establishments located on the same block, she ultimately selects the restaurant with the higher prices (assuming cost is not an issue for either economist). Economist B chooses to go to a one-price all-you-can-eat buffet. Using economic theory how would you explain the difference in way Economist A goes about maximizing her utility to Economist B? Next year when they both return to the economics conference in the same city, which of the two restaurants do you think has a higher chance of not being there anymore and why? (one paragraph) (b) Your mother owns and runs an arts and craft store, and the business is doing well. She would have otherwise been employed as a high school history teacher making $75,000 a year or as a swimming coach making $64,000 a year. She owns the building in which her shop is located, which she could have rented out for $24,000 a year. Her annual revenue from the shop is $455,000 and she employs four workers, each of whom earns $40,000 a year. On average, she spends $200,000 per year traveling, purchasing, and shipping unique merchandise for resale at her store. Based on this information, should you encourage her to return to teaching? Explain why or why not with the help of calculations on her opportunity costs, accounting profit, and economic profit. (Note: You should present some numeric calculations to support your answer).
In this week’s discussion we focus on consumer decision-making based on utility theory,
(a) Two economists are attending a conference in an unfamiliar city. At the end of the day, Economist A states she is “in the mood for a high-quality dinner” and after narrowing her search to two fine-dining establishments located on the same block, she ultimately selects the restaurant with the higher prices (assuming cost is not an issue for either economist). Economist B chooses to go to a one-
(b) Your mother owns and runs an arts and craft store, and the business is doing well. She would have otherwise been employed as a high school history teacher making $75,000 a year or as a swimming coach making $64,000 a year. She owns the building in which her shop is located, which she could have rented out for $24,000 a year. Her annual revenue from the shop is $455,000 and she employs four workers, each of whom earns $40,000 a year. On average, she spends $200,000 per year traveling, purchasing, and shipping unique merchandise for resale at her store. Based on this information, should you encourage her to return to teaching? Explain why or why not with the help of calculations on her opportunity costs, accounting profit, and economic profit. (Note: You should present some numeric calculations to support your answer).
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