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15 The table below contains information on three techniques for producing $15 worth of bar soap. Assume that we specified "$15 worth of bar soap" because soap costs $3 per bar and all three techniques produce 5 bars of soap ($15 = $3 per bar x 5 bars). So you know each technique produces 5 bars of soap. eBook able[[Units of Resource],[Resource, able[[Price per],[Unit]], able[[Technique],[1 Units]], able[[Technique],[1 Cost]], able[[Technique],[2 Units]], able[[Technique],[2 Cost]], able[[Technique],[3 Units]], able[[Technique],[3 Cost]],,,,,,,,],[Labor,$2,4,$8,2,$4,1,$2,,,,,,,,],[Land,1,1,1,3,3,4,4,,,,,,,,],[Capital,3,1,3,1,3,2,6,,,,,,,,],[Entrepreneurial ability,3,1,3,1,3,1,3,,,,,,,,],[Total cost of $15 worth of bar soap,,,$15,,$13,,$15,,,,,,,,]] a. What technique will you want to use if the price of a bar of soap falls to $2.75? 

          15
The table below contains information on three techniques for producing $15 worth of bar soap. Assume that we specified "$15 worth of bar soap" because soap costs $3 per bar and all three techniques produce 5 bars of soap ($15 = $3 per bar x 5 bars). So you know each technique produces 5 bars of soap.

eBook
	able[[Units of Resource],[Resource,	able[[Price per],[Unit]],	able[[Technique],[1 Units]],	able[[Technique],[1 Cost]],	able[[Technique],[2 Units]],	able[[Technique],[2 Cost]],	able[[Technique],[3 Units]],	able[[Technique],[3 Cost]],,,,,,,,],[Labor,$2,4,$8,2,$4,1,$2,,,,,,,,],[Land,1,1,1,3,3,4,4,,,,,,,,],[Capital,3,1,3,1,3,2,6,,,,,,,,],[Entrepreneurial ability,3,1,3,1,3,1,3,,,,,,,,],[Total cost of $15 worth of bar soap,,,$15,,$13,,$15,,,,,,,,]]

a. What technique will you want to use if the price of a bar of soap falls to $2.75?
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15 the table below contains information on three techniques for producing 15 worth of bar soap assume that we specified 15 worth of bar soap because soap costs 3 per bar and all three techni 71963

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Principles of Economics
Principles of Economics
Gregory Mankiw 8th Edition
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15 The table below contains information on three techniques for producing $15 worth of bar soap. Assume that we specified "$15 worth of bar soap" because soap costs $3 per bar and all three techniques produce 5 bars of soap ($15 = $3 per bar x 5 bars). So you know each technique produces 5 bars of soap. eBook able[[Units of Resource],[Resource, able[[Price per],[Unit]], able[[Technique],[1 Units]], able[[Technique],[1 Cost]], able[[Technique],[2 Units]], able[[Technique],[2 Cost]], able[[Technique],[3 Units]], able[[Technique],[3 Cost]],,,,,,,,],[Labor,$2,4,$8,2,$4,1,$2,,,,,,,,],[Land,1,1,1,3,3,4,4,,,,,,,,],[Capital,3,1,3,1,3,2,6,,,,,,,,],[Entrepreneurial ability,3,1,3,1,3,1,3,,,,,,,,],[Total cost of $15 worth of bar soap,,,$15,,$13,,$15,,,,,,,,]] a. What technique will you want to use if the price of a bar of soap falls to $2.75?
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Transcript

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00:01 So let's go over this question.
00:08 So we need to find a bundle where marginal utility of good f over price of good f is equal to marginal utility of the candy bar over price of the candy bar.
00:25 We also need to make sure that it's within her budget.
00:28 So her budget is $20.
00:37 So marginal utility is the difference between the total benefit of the previous quantity and the current quantity.
00:46 The price of f is $2 and the price of the candy bar is $4.
00:56 So we know that the number on top here should be twice the amount as the number on top here.
01:04 So if we look at the chart, the quantity of 4, the total benefit is 100 and then for the third one, it's 90.
01:15 So the difference in the marginal utility for the fourth unit of good f is 10.
01:21 So then for the third unit of candy bars, we have 140.
01:27 Well, for the second unit, we have 120.
01:30 So then the difference is 20.
01:33 So you could see that these two are equal.
01:37 So therefore, these would be an optimal bundle.
01:44 So basically then we need to multiply by the price.
01:51 So we do 4 of good f times 2 is 8 total and then $4 times 3 candy bars gives you 12 total.
02:00 If you add them together, you'll get 20.
02:02 So that's within the budget.
02:03 So then we found the optimal bundle.
02:09 Then we now need to calculate her consumer surplus from the fourth candy bar.
02:19 Consumer surplus is equal to the maximum price she's willing to pay minus the price that she actually pays.
02:40 So for the fourth candy bar, we look at her total benefit.
02:49 That gives you the maximum price she's willing to pay because basically total benefit is representing the price on the demand curve.
03:01 So then for the price actually paid, we have 4 candy bars multiplied by the price of candy bars, which was $4.
03:13 So we have 152 minus 16.
03:44 So her weekly income is decreasing to 18.
03:49 Can she buy 5 units of good f for 2 candy bars? so 5 units of good f.
04:04 And now we need to multiply by the price.
04:07 So that would cost her $10 total.
04:11 And she wants to buy 2 candy bars.
04:17 So we need to multiply by the price of candy bars and she gets 8.
04:22 So it looks like this is within her budget.
04:27 So yes, she could purchase them.
04:33 Suppose the candy bars are produced in a perfectly competitive market and the price of sugar increases.
04:40 If candy bars are a normal good, will the quantity of candy bars that will maximize her total benefit increase, decrease, or stay the same? so the price of sugar goes up.
05:03 Therefore, cost of production goes up...
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