Given price of a goods, how does a consumer decide as to how much of the good to buy?
The marginal utility of a good or service is the gain from an increase, or loss from a decrease, in the consumption of that good or service. In order to decide, how much of a good to buy at a given price, a consumer compares Marginal Utility (MU) of the good with its price (P). The consumer will be at equilibrium, when the Marginal Utility of the good will be equal to the price of the good.
i.e. MUx = Px
If MUx > Px, that is, when price is lesser than the Marginal Utility, then the consumer will buy more of that good.
On the other hand, if MUx < Px, that is, when price is more than the Marginal Utility, then the consumer will buy less of good.
Draw Average Variable Cost, Average Total Cost ad Marginal Cost curves in a single diagram.
An individual is both the owner and the manager of a shop taken on rent. Identify implicit cost and explicit cost from this information. Explain.
What is the behaviour of average revenue in a market in which a firm can sell more only by lowering the price?
