This document contains information about consumer demand, firm marginal costs, data analytics, opportunity cost, sunk cost, fixed cost, variable cost, and marginal cost. It includes examples of demand curves, an analysis of when consumer surplus is maximized, and calculations of marginal benefit, marginal cost, average total cost, and optimal production levels.

1. VictoriaLee AtlanticPuffins
15.010 Econ ProblemSet#1
CONSUMERDEMAND
1. My Popcorn Demand
a. Price
10
$5
1 Quantity
2. Market Popcorn Demand
a. Price
$10
$5
1000 Quantity
FIRM MARGINALCOST
As an industryanalyst,youdiscoveredacompanypresentationshowingthatafirm’saverage costfalls
withoutput.What doesthistell youaboutthe firm’smarginal cost?
Thismeansthe firm’smarginal costis below the average cost
DATALYTICS
 At 4 monthswill the level of engagementmaximizeconsumersurplus
 The highestlevel of involvementwithmarginalbenefit>=marginal cost is4 months:
SALEM CASE – Income statement
Months Total WTP Total Cost Consumer surplus Marginal Benefit Marginal Cost
1 2.57 1 1.57
2 4.59 2 2.59 2.02 1
3 6.04 3 3.04 1.45 1
4 7.15 4 3.15 1.11 1
5 7.85 5 2.85 0.7 1
6 8.39 6 2.39 0.54 1

2. VictoriaLee AtlanticPuffins
15.010 Econ ProblemSet#1
 Opportunity Cost: lossof potential gainfromotheralternativeswhenone optionischosen.A
personal exampleischoosingtogoout to a restaurantto try a new cuisine,butinsteadIcould
have spentthistime withmycore team!
o Example:insteadof spendingoncustodial services, the companycanlive intheirown
filthandspendthe moneygivingoutbonusestotheirexecutives.
 Sunk cost: is a cost that cannot be recovered.
o Example:computerlease because itwasalreadysignedandagreedtobe paidfor (not
cancellable)
 Fixedcost: isa cost that doesn’tchange basedontheiroutput
o Example:salariedstaff isa fixedcostbecause unlesstheyfire people inthistime frame,
it’sexpectedthe companywillbe payingforthe same amountregardlessof output
 Variable cost: costthat changesbasedon the output
o Example:hourlypersonnel isavariable costbecause itchangeseverymonthand
probablydependsonthe output
 Marginal cost: cost addedby producingone additionalunit
o
o Marginal cost is $28.28
 Yes,marginal cost issignificantlylowerthan$700. We shouldincrease the outputuntil Marginal
Cost equatestoMarginal Revenue whichis$700
CARIS ADVISOR
-Optimal productionis700 because that’swhenmarginal costisbelow the revenue
$200
c. At 30,000, I wouldkeepitat700 because that’swhenaverage total costisstill below $200.
But at 35,000, I wouldnotrecommendproductionatall because that’swhenaverage total cost
isabove $200.
Jan Feb March Change between Mar and Jan
Variable cost 32775 31467 33680 905
Hours 329 316 361 32
Marginal cost99.62006 99.57911392 93.29639889 28.28125
Units Produced Variable cost Fixed cost Avg fixed cost Average Total Cost Marginal cost
100 15,000 30,000 300 450 250
200 32000 30,000 150 310 170
300 48000 30,000 100 260 160
400 63000 30,000 75 233 150
500 76000 30,000 60 212 130
600 90000 30,000 50 200 140
700 109000 30,000 43 199 190
800 135000 30,000 38 206 260
900 175000 30,000 33 228 400
1000 250000 30,000 30 280 750