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ECS1501 - CHAPTERS 12 TO 15 SUMMARY - 2023
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This document is a summary of chapters 12 to 15. Using it correctly can help you pass Assessment 11.
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ECS1501 – SUMMARY1. Marginal utility - is the amount of additional utility the person receives from the
consumption of additional units of a good or service.
Marginal utility (MU) = MU =
2. Weighted marginal utility =
3. Price = MU MU/P
4. Utility - Utility is therefore the satisfaction a consumer expects from the
consumption of goods or services.
5. Total utility - Total utility is the total amount of utility one gains from consuming
goods or services.
6. Total utility increases at a decreasing) rate.
7. Marginal utility and the law of diminishing marginal utility
1
,Law of diminishing marginal utility, which states that the marginal utility or extra
satisfaction gained from consuming a good or service declines as more of a good is
consumed in a given period.
8. Relationship between total utility and marginal utility
- As total utility increases at a decreasing rate, then marginal utility decreases.
- When total utility is at a maximum point, then marginal utility is zero.
- When total utility starts to decline, then marginal utility becomes negative.
9. Consumer equilibrium
- Consumer equilibrium is also the point where the weighted marginal product is
the same for the different goods
- The utility-maximising choice between goods occurs where the weighted
marginal utility (marginal utility per rand) is the same for both goods.
2
, 1. Profit and profit maximisation
- Profit = total revenue − total cost
- Profit = TR – TC
- Total revenue = price × quantity
- TR = P x Q
- Profit maximisation occurs where the positive difference between total revenue
(TR) and total cost (TC) is the greatest.
2. Explicit versus implicit costs
Explicit – Actual costs
Implicit costs – Opportunity costs
- Accountant – Explicit costs
- Economist – Explicit costs + Implicit costs
Total profit = Total Revenue - Total Cost
= TR – TC
2. Accounting profit, normal profit, and economic profit
- Accounting profit is total revenue minus explicit costs
- Economic profit is total revenue minus explicit and implicit costs.
- Normal profit occurs when total revenue equals total cost (explicit and implicit)
3. Law of diminishing returns
3
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